
telinstru20240331_10k.htm






UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-K
 

 
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended March 31, 2024
 
Commission File No. 001-31990
 
TEL-INSTRUMENT ELECTRONICS CORP.
(Exact name of Registrant as specified in its charter)
 
   New Jersey   22-1441806     (State of incorporation)   (IRS Employer Identification Number)               One Branca Road East Rutherford, New Jersey   07073     (Address of principal executive offices)   (Zip Code)  

 
Registrant’s telephone number, including area code: (201) 933-1600
 



Title of each class


 


Trading Symbol(s)


 


Name of each exchange on which registered




N/A


 


N/A


 


N/A



 
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.10 par value
(Title of class)
 
Indicate by checkmark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
 
Indicate by checkmark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
 
Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
 

 


 


 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
   Large accelerated filer   ☐   Accelerated filer   ☐     Non-accelerated filer   ☒   Smaller reporting company   ☒             Emerging growth company   ☐  

 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
 
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
 
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
 
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive oﬃcers during the relevant recovery period pursuant to §240.10D-1(b). ☐
 
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Act). Yes ☐ No ☒
 
The aggregate market value of the voting and non-voting common stock held by non-affiliates on September 30, 2023 (the last business day of our most recently completed second fiscal quarter) was $3,586,188 based on the closing price of $2.00 on September 30, 2023.
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
3,255,887 shares of common stock, par value $0.10 per share, were outstanding as of June 26, 2024.
 

 


 


 
TEL-INSTRUMENT ELECTRONICS CORP.
 
TABLE OF CONTENTS
 



PART I.


 


Page




 


 


 




Item 1.


Business


5




 


 


 




Item 1A.


Risk Factors


10




 


 


 




Item 1B.


Unresolved Staff Comments


10




 


 


 




Item 1C.


Cybersecurity


10



 
 
 



Item 2.


Properties


11




 


 


 




Item 3.


Legal Proceedings


11




 


 


 




Item 4.


Mine Safety Disclosures 


11




 


 


 




PART II.


 


 




 


 


 




Item 5.


Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


12




 


 


 




Item 6.


Reserved


13




 


 


 




Item 7.


Management’s Discussion and Analysis of Financial Condition and Results of Operations


13




 


 


 




Item 7A.


Quantitative and Qualitative Disclosures About Market Risk


17




 


 


 




Item 8.


Financial Statements and Supplementary Data


17




 


 


 




Item 9.


Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


41




 


 


 




Item 9A.


Controls and Procedures


41




 


 


 




Item 9B.


Other Information


42




 


 


 




Item 9C.


Disclosure Regarding Foreign Jurisdictions that Prevent Inspections


42




 


 


 




PART III.


 


 




 


 


 




Item 10.


Directors, Executive Officers, and Corporate Governance


43




 


 


 




Item 11.


Executive Compensation


46




 


 


 




Item 12.


Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


49




 


 


 




Item 13.


Certain Relationships and Related Transactions and Director Independence


51




 


 


 




Item 14.


Principal Accounting Fees and Services


52




 


 


 




PART IV.


 


 




 


 


 




Item 15.


Exhibits and Financial Statement Schedules


53




 


 


 




Item 16.


Form 10-K Summary


54



 

 



Table of Contents



 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Included in this Annual Report on Form 10-K are “forward-looking” statements, within the meaning of Section 27A and Section 21E of the Securities Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties, as well as historical information. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors. All statements other than statements of historical fact could be deemed forward-looking statements. Statements that include words such as “may,” “will,” “might,” “projects,” “expects,” “plans,” “believes,” “anticipates,” “targets,” “intends,” “hopes,” “aims,” “can,” “should,” “could,” “would,” “goal,” “potential,” “approximately,” “estimate,” “pro forma,” “continue” or “pursue” or the negative of these words or other words or expressions of similar meaning may identify forward-looking statements. For example, forward-looking statements include any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing. Important factors that could cause our actual results, performance, or achievements to differ from these forward-looking statements include the following:
 



•


the availability and adequacy of our cash flow to meet our requirements;



 



•


our ability to manage general economic, business, and geopolitical conditions, including the impacts of natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as the COVID-19 pandemic;



 



•


economic, competitive, demographic, business, and other conditions in our local and regional markets;



 



•


changes in our business and growth strategy;



 



•


changes or developments in laws, regulations, or taxes in the electronics/aerospace industry;



 



•


actions taken or not taken by third parties, including our vendors, customers, and competitors;



 



•


the availability of additional capital; and



 



•


other factors discussed elsewhere in this Annual Report.



 
These forward-looking statements are found at various places throughout this Annual Report on Form 10-K and the other documents referred to and relate to a variety of matters. These forward-looking statements should not be relied upon as predictions of future events and Tel-Instrument Electronics, Corp. (the “Company”) cannot assure you that the events or circumstances discussed or reflected in these statements will be achieved or will occur. Furthermore, if such forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by the Company or any other person that the Company will achieve its objectives and plans in any specified timeframe, or at all. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K.
 
All forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise unless required by applicable law.
 
 

 



Table of Contents



 
PART I
 
Item 1. Business
 
General 
 
Tel-Instrument Electronics Corp. (“Tel,” “TIC” or the “Company”) has been in business since 1947 and based in East Rutherford NJ. The Company is a leading designer and manufacturer of avionics test and measurement instruments for the global, commercial air transport, general aviation, and government/military defense markets. Tel provides instruments to test, measure, calibrate, and repair a wide range of airborne navigation and communication equipment. The Company sells its equipment in both domestic and international markets that range in list price from $13,900 to $99,900. Tel continues to develop new products in anticipation of customers’ needs and to maintain its strong market position. Its development of multi-function testers has made it easier for customers to perform ramp tests with less operator training, fewer test sets, and lower product support costs. The Company has become a major manufacturer and supplier of Identification Friend or Foe (“IFF”) flight line test equipment over the last two decades.
 
The Company is publicly traded and was quoted on the Over-the-Counter Market Place (“OTCQB”) under the symbol “TIKK.”
 
TIC has received a $3 million funded ECP contract from the U.S. Navy to remove product obsolescence from the CRAFT units. TIC has sold approximately 1,200 of the AN/USM-708 and AN/USM-719 to the Navy. The development portion of the program is nearing completion with the Test Readiness Review (“TRR”) completed in April 2024. The upgraded test sets are currently in environmental testing with the production contracts expected to be issued by year-end. TIC will then upgrade the Navy units with new printed circuit boards (“PCB’s”) and software which is expected to generate revenues of at least $20 million over a four-year period. This could also generate substantial revenues from other CRAFT customers that want the updated software and hardware.
 
TIC has spent several years and millions of dollars in developing our ground-breaking SDR/OMNI and SDR-OMNI/MIL product which will address both the commercial market for transponder and navigation test sets as well as competing in the military secure comm test set market. The SDR/OMNI product line supports a wide frequency range to accommodate new commercial and military waveforms in an industry leading 4.5-pound package. This is approximately half the weight of competitive test sets. It is also the only new multi-purpose test set which meets the Class 1 military environmental specifications. It utilizes the latest touch screen technology and has the capability to replace all TIC commercial test sets and military flight-line test sets with one handheld product. The Company started initial production deliveries in December 2022. The Company recently received an order from Airbus for SDR-OMNI test sets to replace the obsolete test sets used in their world-wide manufacturing. This is a significant win as Airbus evaluated competitive products and selected the SDR-OMNI due to its faster speed and ease of use. TIC recently released the SDR-OMNI/MIL test set which adds SIF and TACAN test capability. The SDR-OMNI/MIL has received positive reviews from the U.S. DOD and international military customers. This is designed to replace thousands of obsolete military test sets currently in use. This is expected to be a significant driver of both revenues and future profitability. There are several companies competing in this market space, but we believe that our SDR/OMNI design will be extremely competitive.
 
The Company continues to pursue opportunities in the domestic and international market for our Mode 5 test sets. We continue to receive substantial orders from the U.S. Government and Northrup Grumman for our AN/USM-708 and 719 (“CRAFT”) Mode 5 test sets. We have completed the funded software upgrade to the TS-4530A product in the amount of $0.9 million and are in the process of securing AIMS certification. It is also possible that the USAF will elect to upgrade its TS-4530A units as well.
 
TIC is also exploring new avenues to broaden its product portfolio including designing a high frequency test set for the Lockheed Martin F-35 program. This contract takes advantage of our expertise in RF technology. This is a completely new market for TIC as it involves high frequency communication signals. TIC is currently negotiating a production contract with Northrup Grumman for the new MADL test set.
 
Mode 5 Identification Friend or Foe (“IFF”) Products
 
T-47/M5 Dual Crypto Test Set
 
This test set has been well-received in the market, especially in the international market. It is designed as a KIV 77/KIV78 Mode 5 upgrade for the approximately 2,000 AN/APM-480A and T-47 series Mode 4 IFF test sets that the Company has sold both domestically and internationally. This will be a cost-efficient upgrade to Mode 5 for our large installed customer base. The T-47/M5 capabilities allow full testing, simulation, and analysis of the following systems: Interrogator/Transponder Test set for Modes 1, 2, 3A, C, S, EHS, ADS-B TX and RX with 4 and Mode 5, TACAN, TCAS I, II and E-TCAS. The T-47/M5 utilizes the KIV-77, SIT 2010 or the KIV-78 Crypto applique (not included) for Mode 5 testing and built in USB connection available for remote diagnostic testing and download of test results to a PC.
 

5



Table of Contents



 
Item 1. Business (continued)
 
General (continued)
 
Mode 5 Identification Friend or Foe (“IFF”) Products
 
T-47/M5 Dual Crypto Test Set
 
This test set has been well-received in the market, especially in the international market. It is designed as a KIV 77/KIV78 Mode 5 upgrade for the approximately 2,000 AN/APM-480A and T-47 series Mode 4 IFF test sets that the Company has sold both domestically and internationally. This will be a cost-efficient upgrade to Mode 5 for our large installed customer base. The T-47/M5 capabilities allow full testing, simulation, and analysis of the following systems: Interrogator/Transponder Test set for Modes 1, 2, 3A, C, S, EHS, ADS-B TX and RX with 4 and Mode 5, TACAN, TCAS I, II and E-TCAS. The T-47/M5 utilizes the KIV-77, SIT 2010 or the KIV-78 Crypto applique (not included) for Mode 5 testing and built in USB connection available for remote diagnostic testing and download of test results to a PC.
 
The T-47/M5 performs the following tests:
 



●


Comprehensive Interrogator and Transponder test Modes 1, 2, 3A, C, S, EHS, Mode 4 and Mode 5



 



●


Multi Crypto Capable - Out of the Box - No Mods or added options needed



 



●


Full TACAN testing of A/A, G/A, and A/A BCN on all 252 TACAN channels X and Y



 



●


TCAS I, TCAS II and E-TCAS airborne systems intruder simulations



 



●


Mode 5 testing with a built in powered bay for the KIV-77, SIT 2010 and KIV-78 Crypto Applique’



 



●


Full Testing of ADS-B in compliance with RTCA DO-260 A and B requirements



 



●


Light Weight compact package in a MILSPEC Class 1 Container



 



●


Long Lasting Battery



 



●


Supports Remote Client testing utilizing USB connection to any laptop or desktop computer



 



●


Large Full Color Display with User Friendly easy to navigate interface



 
We have already sold approximately $14 million of these test sets to both domestically and internationally. TIC believes this product will continue to support our future growth and profitability. Tel has also received U.S. DOD AIMS certification for the T-47/M5 Test Set and is working on an updated approval for the most recent software build.
 
TS-4530A IFF Test Set
 
The TS-4530A test set provides simple to use GO/NO-GO operation. The TS-4530A, developed under a U.S. Army contract, now tests IFF Mode 5, ADS-B, EHS, and TCAS. The TS-4530A includes a large 8 line, color display and a new 3-button switch assembly that adds a 4-way directional toggle action for improved usability. The upper housing includes a built-in KIV-77 CCI appliqué enclosure.
 
Based on a new, highly integrated digital architecture; the TS-4530A performs the following tests:
 



●


Transponder: Modes 1, 2, 3/A, C, 4 Mode S, EHS (Enhanced Surveillance) and Mode 5 (Levels 1 & 2)



 



●


ADS-B In and Out (transmit and receive) testing



 



●


Built in GPS with integrated GPS antenna provides accurate Date, TOD and LAT/LONG for positioning



 



●


Simple to use GO/NO-GO operation



 



●


Selected Mode S BDS register information



 

6



Table of Contents



 
Item 1. Business (continued)
 
General (continued)
 
We have delivered over 3,540 TS-4530A kits and test sets. The U.S. Army will be upgrading the software for its units to provide increased functionality such as the addition of Mode 5 Level 2B. It is also possible that the U.S. Air Force will upgrade its TS-4530A units which would entail an additional funded contract.
 
T-4530i IFF Test Set
 
This new test is a software/hardware upgrade of the TS-4530A product. The lead customer for this test is the German military. This unit includes extended life Ni-MH batteries and significantly expanded manual Mode 5 test capability using a seven-year indefinite-delivery-indefinite quantity (“IDIQ”) contract to our European distributor, Muirhead Avionics (“Muirhead”) for T-4530i test sets. In total, TIC has delivered $3.5 million of these test sets to Germany.
 
Communications/Navigation (“COMM/NAV) Radio Frequency (RF) Avionics Flight line Tester”) (“CRAFT”) (AN/USM-708 and AN/USM-719)
 
The AN/USM-708 multi-purpose test set was developed by the Company in conjunction with the U.S. Navy. The AN/USM-708 large 6.0 inch color LCD screen and surrounding soft-keys and keyboard provides easy and quick access to a multiple of test screens menus, and display options affording single man operation, instant results, and a host of pre-programmed and manually variable parameters to meet the most demanding requirements for testing of airborne avionic and communication equipment.
 
The AN/USM-708 has been and continues to be a key product for the Company as it represents a new generation technology product. The Company delivered approximately $41 million in orders, representing over 1,300 test sets, for the AN/USM-708 and AN/USM-719 (IFF only) test sets to the U.S. Military. The AN/USM-708 CRAFT unit combines advanced IFF (including Mode 5 encryption technology) navigation, communication, and sonobuoy test capabilities in a portable test set, which will utilize a flexible and expandable digital-signal-processing-based architecture. Both the AN/USM-708 and the AN/USM-719 have been certified by the AIMS Program Office.
 
The Joint Strike Fighter (“JSF”) program continues to generate CRAFT orders as this program ramps up production. The Company has already received orders from Lockheed Martin and Northrup Grumman for the AN/USM-708 units, for the JSF Program, totaling approximate $11 million. Sikorsky has also indicated that it will be ordering CRAFT test sets for its new helicopters. The Company also believes it will receive orders from other customers for this product.
 
The CRAFT ECP program is proceeding on schedule, and we held the Test Readiness Review (“TRR”) in April 2024. The next major engineering milestone is the Production Readiness Review which should take place this Fall. This will entail replacing the Single Board Computer and four PCB’s (printed circuit board”) in existing Navy units. The production contract is expected to generate significant revenues from the Navy and other customers starting in the fourth quarter of fiscal year ending March 31, 2025.
 
For more information, please visit www.telinstrument.com for a complete listing of all of the Company’s different military and commercial products.
 
New Products
 
SDR/OMNI/MIL
 
TIC has spent the last several years developing the SDR-OMNI avionics test set which currently operates in the 1 MHz to 2.2 GHz range. This new test set utilizes software-designed radio technology that enables it to test all common avionics functions in one 4.5- pound test set, which is half the weight of competitive test sets. The SDR-OMNI has very wide frequency to accommodate new commercial and military waveforms. It utilizes the latest touch screen technology and has the capability to replace all TIC commercial test sets with one handheld product. At less than five pounds, this test set will be the smallest and most rugged test set available in the market with full Class 1 MIL-PRF-28800 environmental compliance including temperature ranges from -40 degrees to +55 degrees centigrade. The U.S. military will need to upgrade thousands of existing communication and navigation test sets over the next several years to address the new frequency and waveform requirements for military radios and we believe the SDR-OMNI/MIL is well positioned to capture a large portion of this business. This new technology could provide us with the opportunity to expand out of our relatively narrow avionics test market niche and enter the much larger secure military and homeland security radio test market which is many times the size of our existing avionics test market. The secure military test set market is very large, and we are anticipating several large competitive DOD solicitations to take place in the next several years.
 

7



Table of Contents



 
Item 1. Business (continued)
 
General (continued)
 
MADL TEST SET
 
TIC is also exploring new avenues to broaden its product portfolio including designing a high frequency test set for the Lockheed Martin F-35 program. This contract takes advantage of our expertise in RF technology. This is a completely new market for TIC as it involves high frequency communication signals. TIC is currently negotiating a production contract with Northrup Grumman for the new MADL test set. It will also position TIC for further development contracts with LMCO.
 
Future Prospects
 
The Company has built a very solid position in the Mode 5 IFF and TACAN test set market. The planned Navy ECP for CRAFT should generate substantial recurring revenues with the KIT upgrade of all of the Navy units and potentially units sold to other customers. We currently have the majority of the Mode 5 IFF flight-line test market and expect to continue to dominate this market segment with our commitment to self-funded research such as adding Mode 5 Level 2B to our T-47/M5 product.
 
We believe our new SDR-OMNI will do very well in the world-wide commercial avionics market although we are facing new competition from our major competitors. Based on extensive customer feedback, it appears that the SDR/OMNI has a superior design. This is evidenced by Airbus selecting the SDR-OMNI after an extensive competitive analysis. This should generate increased market share at very attractive gross margin levels. The real focus for the SDR/OMNI is in the military arena for Nav/Comm testers and communication test sets. This market has been dominated by Aeroflex for the last 30 years and TIC has not had a viable competitive product until now. The SDR-OMNI/MIL is ideally suited for these markets as it is the only test set on the market with full Class 1 DOD environmental compliance. The secure military test set market is very large, and we are anticipating several large competitive DOD solicitations to take place in the next several years.
 
Competition
 
The general aviation market consists of some 1,000 avionics repair and maintenance service shops at private and commercial airports in the United States that purchase test equipment to assist in the repair of aircraft electronics. The commercial aviation market consists of approximately 80 domestic and foreign commercial airlines.
 
The civilian market for avionic test equipment has been dominated by our major competitor. They have dominated the commercial market with their IFR 4000 and 6000 test sets which were first introduced in 2004. They have sold thousands of these units over the last 18 years. These are becoming obsolete and will need to be replaced. Our competitor has recently introduced a new test set called the AVX-10K which combines the two test sets into one unit. A Canadian company has recently introduced a competitive product which appears to be doing well in the market. The SDR/OMNI is smaller, more rugged, and easier to use than these two test sets and we are very optimistic that it will greatly improve our market share.
 
The military market is large and is dominated by large corporations with substantially greater resources than the Company. Tel competitively bids for government contracts based on the engineering quality and innovation of its products, competitive price, and “small business set asides” (i.e., statutory provisions requiring the military to entertain bids only from statutorily defined small businesses), and on bids for sub-contracts from major government suppliers. There are a limited number of competitors who are qualified to bid for “small business set asides.” The military market consists of many independent purchasing agencies and offices. The process of awarding contracts is heavily regulated by the U.S. Department of Defense.
 
Over the last twenty years, the Company has won several large, competitively bid contracts from the military and has become the primary supplier for the U.S. Military, as well as the NATO countries, of flight line IFF test equipment. The CRAFT AN/USM-708, CRAFT AN/USM-719, TS-4530A, TS-4530i and TR-47/M5 test sets, discussed previously, involve a new generation of technology, including the next generation of IFF testing, and is expected to enable the Company to continue to be a major supplier of avionics test equipment to the military for years to come. Tel believes its new technology will also allow it to increase sales to the commercial avionics market in the future and expand into the very large secure communication test market.
 

8



Table of Contents



 
Item 1. Business (continued)
 
General (continued)
 
Marketing and Distribution
 
Domestic commercial sales are made throughout the U.S. to commercial airlines and general aviation businesses directly or through distributors. There were $2,113,567 in domestic commercial sales in fiscal year 2024 and there were two (2) direct domestic commercial customer who accounted for 24% and 19%, of domestic commercial sales, respectively. The Company has one domestic distributor which receives discounts ranging between 10%-20% discount for stocking, selling, and, in some cases, providing product calibration and repairs. The loss of this distributor would not have a material adverse effect on the Company or its operations. Our domestic commercial distributor represented approximately 24% and 19%, respectively, of total sales during fiscal years 2024 and 2023.
 
Marketing to the U.S. Government is made directly by employees of the Company or through independent sales representatives, who receive similar commissions to the commercial distributors. For the years ended March 31, 2024, and 2023, sales to the U.S. Government, including shipments through the government’s logistics centers, represented approximately 5% and 18%, respectively, of total sales. For the year ended March 31, 2024, two (2) direct customers represented 28% and 10% of total sales and three (3) customers represented 31%, 13% and 10% of government sales, respectively. No international distributors represented more than 10% of total sales or of government sales for the year ended March 31, 2023. For the year ended March 31, 2023, two (2) direct customers represented 17% and 11% of total sales and three (3) customers represented 16%, 13% and 11% of government sales, respectively.
 
International sales are made throughout the world to government and commercial customers, directly through American export agents, or through the Company’s overseas distributors at a discount reflecting a 15% to 22% selling commission, under written or oral, year-to-year arrangements. The Company has an exclusive distribution agreement with Muirhead Avionics Ltd (“Muirhead”) and Accessories, Ltd (“Muirhead”), based in the United Kingdom, to represent the Company in parts of Europe, and with Milspec Services in Australia and New Zealand. Tel also sells its products through exclusive distributors in Spain, Portugal, and East Asia and is exploring distribution in other areas. For the years ended March 31, 2024, and 2023, total international sales were 13% and 22%, respectively, of sales, the notable decrease is due major delays in component shipments from our vendors delaying the fulfillment of open sales orders and international government budgetary restrictions. Additionally, the Company has an agreement with M.P.G. Instruments s.r.l., based in Italy, wherein this distributor has the exclusive sales rights for DME/P ramp and bench test units. The Company continues to explore additional marketing opportunities in other parts of the world, including East Asia.
 
The Company has no material assets overseas. Tel also provides customers with calibration and repair services. Repairs and calibrations accounted for 14% and 16.5% of sales for the years ended March 31, 2024, and 2023, respectively.
 
Future domestic market growth, if any, will be affected in part by whether the U.S. Federal Aviation Administration (“FAA”) implements additional plans to upgrade the U.S. air traffic control system regulations and by continuing recent industry trends towards more sophisticated avionics systems, both of which would require the design and manufacture of new test equipment. Currently, the T-47/M5 has been upgraded for continued support of NATO customers as well as the addition of Mode 5L2B. This technology will be supported in our T-47/M5, TS-4530A(Army) product lines. Military contracts are awarded and implemented by extensive government regulation. The Company believes its test equipment is recognized by its customers for its quality, durability, reliability, affordability, and by its advanced technology.
 
Backlog
 
Set forth below is Tel’s backlog on March 31, 2024, and 2023:
 


 
 

Commercial

 
 

Government

 
 

Total

 


 
 
 
 
 
 
 
 
 
 
 
 
 



March 31, 2024

 
$
478,730
 
 
$
6,709,133
 
 
$
7,187,863
 



March 31, 2023

 
$
409,256
 
 
$
6,138,647
 
 
$
6,547,903
 


 
Tel believes that most of its backlog on March 31, 2024, will be delivered during the next 12 months. The backlog is pursuant to purchase orders. Historically, the Company obtains orders which are required to be filled in less than 12 months, and therefore, backlog amounts at the end of the period do not reflect delivered or future orders.
 

9



Table of Contents



 
Item 1. Business (continued)
 
General (continued)
 
Suppliers
 
TIC obtains its purchased parts from a number of suppliers. In fiscal years 2024, and 2023 our supply chain had significant issues with deliveries being delayed which negatively impacted TIC’s revenues and profitability. The situation has been slow in improving this calendar year and the Company is placing orders earlier to allow for longer lead times to obtain purchased parts, as needed, at acceptable prices.
 
Notably, our AN/USM-708 battery component deliveries were delayed approximately 4 months due to our supplier waiting on backlogged components preventing final deliveries to customers. This had a significant negative impact on FY 2024 revenues.
 
Patents and Environmental Laws
 
TIC has no patents or licenses which are material to its business, and there are no material costs incurred to comply with environmental laws.
 
Engineering, Research, and Development
 
In the fiscal years ended March 31, 2024, and 2023, Tel incurred expenses of $1,155,750 and $1,814,198, respectively, on the engineering, research, and development of new and improved products. The decline for the latest fiscal year is due to engineering expenditures for the funded CRAFT ECP programs being transferred to cost of goods sold. Engineering, research, and development expenditures in fiscal year 2024 were made primarily for the Navy Craft ECP redesign and the incorporation of product enhancements in existing designs. Tel’s management believes that continued significant expenditures for engineering, research, and development are necessary to enable Tel to expand its products, sales, and profits, and to remain competitive.
 
Personnel
 
As of June 27, 2024, Tel had 44 employees, comprised of 18 full-time and 3 part-time employees in manufacturing, supply chain, and quality assurance, 6 full-time and 1 part-time employees in administration and sales, including customer services and product support, and 14 full-time and 2 part-time employees in engineering, research, and development, none of whom belongs to a union. From time to time, the Company also employs independent contractors to support its manufacturing, engineering, and sales organizations. As of June 13, 2024, the Company utilized 2 independent contractors in sales management. Tel has been successful in attracting skilled and experienced management, sales, and engineering personnel, although the market for senior engineering talent is becoming very competitive. We have not experienced any work stoppages and we consider our relationship with our employees to be good.
 
Where You Can Find More Information
 
The public may read and copy any materials the Company files with the U.S. Securities and Exchange Commission (the “SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website (sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
 
Item 1A. Risk Factors
 
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
 
Item 1B. Unresolved Staff Comments
 
Not Applicable.
 
Item 1C. Cybersecurity
 
We have certain processes for assessing, identifying, and managing cybersecurity risks, which are built into our overall information technology function and are designed to help protect our information assets and operations from internal and external cyber threats, protect information from unauthorized access or attack, as well as secure our network and systems. Such processes include physical, procedural, and technical safeguards, tests on our systems, and routine review of our policies and procedures to identify risks and improve our practices.
 

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Item 1C. Cybersecurity (continued)
 
We engage certain external parties, including an information technology consultant, to enhance our cybersecurity oversight.
 
We do not believe that there are currently any known risks from cybersecurity threats that are reasonably likely to materially affect us or our business strategy, results of operations, or financial.
 
Item 2. Properties
 
The Company leases its general office and manufacturing facility in East Rutherford, NJ (approximately 27,000 square feet). In April 2021, the Company extended the lease term for another eight years until August 31, 2029, at an initial monthly rate of $21,237 and ending in a monthly rate of $23,083. Under terms of the lease, the Company is also responsible for its proportionate share of the additional rent to include all real estate taxes, insurance, snow removal, landscaping, and other building charges. The Company is also responsible for the utility costs for the premises.
 
The Company also leases a small office in Lawrence, Kansas under an operating lease agreement. In March 2024, the Company extended the lease term to March 31, 2025.
 
We believe that our facilities are adequate for our needs for the foreseeable future. Tel is unaware of any environmental problems in connection with its location and because of the nature of its manufacturing activities, does not anticipate any such problems.
 
Item 3. Legal Proceedings 
 
Contingencies are recorded in the audited consolidated financial statements when it is probable that a liability will be incurred and the amount of the loss is reasonably estimable, or otherwise disclosed, in accordance with Accounting Standards Codification 450, Contingencies (ASC 450). Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, the Company will, when applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss or if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.
 
The Aeroflex litigation did not result in a favorable outcome for the Company, despite our belief that we committed no wrongdoing. We have paid the $6.6 million judgment and interest in full and there are no outstanding obligations related to the Aeroflex litigation. The jury found no misappropriation of Aeroflex trade secrets but found that the Company tortiously interfered with a prospective business opportunity and awarded damages. The jury also found that TIC tortiously interfered with Aeroflex’s non-disclosure agreements with two former Aeroflex employees, and that the former Aeroflex employees breached their non-disclosure agreements with Aeroflex. Upon appeal, a decision on the case was rendered and released on July 21, 2023, the Kansas Appeals Court rejected each of TIC’s appeal arguments. TIC paid the full judgement and interest in the amount of $6,559,233 on September 15, 2023, including interest of $1,659,233.
 
Other than disclosed above, there are no other actions, suits, proceedings, inquiries or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
 
As of the date of this Annual Report on Form 10-K, except as set forth herein, management believes that there are no claims against TIC, which it believes will result in a material adverse effect on TIC’s business or financial condition.
 
Item 4. Mine Safety Disclosures
 
Not applicable.
 

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PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
a) Market Information
 
The common stock, $0.10 par value per share, of the registrant (“Common Stock”) is traded on the OTCQB under the symbol “TIKK”. The following table sets forth the high and low per share sale prices for our Common Stock for the periods indicated as reported for fiscal years 2024 and 2023 by the OTC. The market quotations reflect interdealer prices, without retail markup, markdown, or commissions, and may not represent actual transactions.
 



Fiscal Year

 
 
 
 
 
 
 
 



Ended March 31,

 

High

 
 

Low

 



2024

 
 
 
 
 
 
 
 



First Quarter

 
$
2.40
 
 
$
2.01
 



Second Quarter

 
 
2.45
 
 
 
2.00
 



Third Quarter

 
 
2.25
 
 
 
1.80
 



Fourth Quarter

 
 
2.25
 
 
 
1.70
 


 
 
 
 
 
 
 
 
 



2023

 
 
 
 
 
 
 
 



First Quarter

 
$
3.19
 
 
$
2.26
 



Second Quarter

 
 
2.93
 
 
 
1.42
 



Third Quarter

 
 
2.49
 
 
 
1.50
 



Fourth Quarter

 
 
2.44
 
 
 
1.90
 


 
b) Holders
 
The Company has approximately 136 holders of its Common Stock as of June 21, 2024. This figure does not consider those shareholders whose certificates are held in the name of broker-dealers or other nominees.
 
c) Dividends
 
We have not declared or paid any dividends on our Common Stock and intend to retain any future earnings to fund development and growth of our business. Therefore, we do not anticipate paying dividends on our common stock for the foreseeable future. TIC has not paid dividends on the preferred shares throughout fiscal 2024. We are not permitted to pay preferred or common dividends without written bank approval.
 
d) Securities Authorized for Issuance under Equity Compensation Plans
 
The following table provides information as of March 31, 2024, regarding compensation plans under which equity securities of the Company are authorized for issuance. See “Equity Compensation Plan Information” under Item 12 below.
 



Plan category

 

Number of securities to be issued 
upon exercise of outstanding options

 
 

Weighted average exercise 
price of outstanding options

 
 

Number of options remaining available for future issuance under Equity Compensation Plans

 



Equity Compensation Plans approved by shareholders

 
 
99,000
 
 
$
3.13
 
 
 
151,000
 



Total

 
 
99,000
 
 
$
3.13
 
 
 
151,000
 


 
Rule 10B-18 Transactions
 
During the year ended March 31, 2024, there were no repurchases of the Company’s Common Stock by the Company.
 
Recent Sales of Unregistered Securities
 
During the year ended March 31, 2024, we have not issued any securities that were not registered under the Securities Act and not previously disclosed in the Company’s Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.
 

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Item 6. Reserved
 
The Company is a smaller reporting company as defined in Item 10 (f) of Regulation S-K and therefore is not required to provide the information under this item.
 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
You should read the following discussion and analysis of our financial condition and results of our operations together with our financial statements and the notes thereto appearing elsewhere in this Annual Report. This discussion contains forward-looking statements reflecting our current expectations, whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the section relating to Forward-Looking Statements below and elsewhere in this Annual Report.
 
Forward Looking Statements
 
A number of the statements made by the Company in this report may be regarded as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1965.
 
Forward-looking statements include, among others, statements concerning the Company’s outlook, pricing trends and forces within the industry, the completion dates of projects, expected sales growth, cost reduction strategies and their results, long-term goals of the Company and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.
 
All predictions as to future results contain a measure of uncertainty and accordingly, actual results could differ materially. Among the factors that could cause a difference are changes in the general economy; changes in demand for the Company’s products or in the costs and availability of its raw materials; the actions of competitors; the success of our customers, technological change; changes in employee relations; government regulations; litigation, including its inherent uncertainty; difficulties in plant operations and materials transportation; environmental matters; and other unforeseen circumstances. A number of these factors are discussed in the Company’s filings with the SEC.
 
General
 
Management’s discussion and analysis of results of operations and financial condition is intended to assist the reader in the understanding and assessment of significant changes and trends related to the results of operations and financial position of the Company. This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying financial notes. The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references in this document to a particular year shall mean the Company’s fiscal year ending on March 31.
 
Overview
 
Fiscal year 2024 operations continued to be affected by major delays in component shipments from our vendors further delaying TIC’s ability to fulfill our customer orders which have hampered our ability to ship units under normal lead times. Long supplier lead lines for certain high demand chips have been unprecedented, preventing the timely production of finished units being shipped to customers. The supply chain situation is gradually improving, and TIC has received sufficient parts to resume normal production operations for the upcoming fiscal year. Although the Company has been negatively impacted by this situation, there was an increase in our receipt of new orders with an open order back log of approximately $7.2 million at March 31, 2024.
 
The Company reported net sales of $8,809,087 for the fiscal year ended March 31, 2024, this compared to net sales of $8,631,157 in the prior fiscal year. This resulted in a 2% increase in sales year over year.
 
The Company reported net income of $341,891 and net sales of $8,809,087 for the fiscal year ended March 31, 2024. This compared to net loss of $388,545 and net sales of $8,631,157 in the prior year. Commercial sales decreased by $78,561 or 3% to $2,183,222 for the year ended March 31, 2024, as compared to $2,261,783 for the year ended March 31, 2023 as TIC has been focusing on introducing the new SDR/OMNI test unit to the commercial airline industry. Avionics government sales increased by $256,491 or 4% to $6,625,865 for the year ended March 31, 2024, as compared to $6,369,374 for the year ended March 31, 2023. This increase in government sales is due primarily to the Navy Craft ECP milestone progress invoicing of $816,236. Gross margin increased by $968,603 to $4,017,353 resulting in a 45.6% gross margin in fiscal year 2024 as compared to $3,048,750 or 35.3% in fiscal year 2023. The increase in gross margin was due to several factors included the commencement of production component costs stabilization post the COVID supply chain issues, increases in sales pricing, and higher margin sales mix.
 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
 
Overview (continued)
 
Total operating expenses for the year decreased by $666,305 or 17% to $3,280,565 as compared to $3,946,870 in the prior year.
 
This was primarily due to an engineering, research, and development expense decrease of $658,448 or 36% as compared to prior fiscal year that included customer project reimbursed engineering costs for the Craft ECP (U.S. Navy) projects. Net income before taxes was $519,834 for fiscal year 2024 as compared to a net loss of $516,682 in fiscal year 2023. The Company’s cash balance on March 31, 2024, was approximately $132,000. The Company’s backlog on March 31, 2024, was approximately $7.2 million.
 
The Company’s cash balance on March 31, 2024 was $132,013 as a result of the full Aeroflex judgement and interest payment in September 2023 of $6.6 million. Cashflow has remained tight for the last quarter due in large part to CRAFT battery shortages that prevented customer shipments. The batteries have now been received and we have begun shipments of these test sets to NGC. Significantly, the Company expects to invoice and recognize revenue of $922,000 for the Navy CRAFT Test Readiness Review (“TRR”) in Q1 of fiscal 2025 with the satisfaction of the performance obligation. The TRR was conducted on April 25, 2024, but the Navy needed to make a contract modification to allow for payment. This contract modification is expected to be issued during the Q1 of fiscal 2025. This payment will allow for vendors to be brought back into typical payment terms. The Company’s cash balance is projected to increase each quarter as a result of customer shipments and cost savings for non-essential spend. On April 1, 2024, Bank of America further extended the maturity date of our line of credit from June 30, 2024 to July 31, 2024. Additionally, the line of credit available was increased from $690,000 to $1,000,000.
 
The Company believes it has sufficient cash on hand and expected cash flow from operations for the next twelve months due to the increase in business and the opportunities we have included in our projections. The Company’s operating profit will continue to improve, as well as our net income with the conclusion of the Aeroflex interest bearing judgment.
 
Results of Operations 2024 Compared to 2023
 
Sales
 
For the year ended March 31, 2024, sales increased $177,930 (2%) to $8,809,087 as compared to $8,631,157 for the year ended March 31, 2023. Commercial sales decreased $78,561 (3%) to $2,183,222 for the year ended March 31, 2024, as compared to $2,261,783 for the year ended March 31, 2023. TIC has recently introduced a new commercial sector product called the SDR/OMNI and the marketing of this product to replace existing units includes lead time with generated sales from these efforts anticipated in the current fiscal year.
 
Avionics government sales increased by $256,491 or 4% to $6,625,865 for the year ended March 31, 2024, as compared to $6,369,374 for the year ended March 31, 2023. This increase in government sales consists of product sales mix and progress invoicing for the Navy Craft ECP project.
 
Gross Margin
 
Gross margin percentage increased by 10.3 percentage points to 45.6%. The increase in gross margin was primarily due to higher margin product sales mix, stabilization of supplier component pricing, larger quantity purchases with volume pricing, and the Army TS-4530A software upgrade yielding a high margin.
 
Operating Expenses
 
Total operating expenses for the year decreased by $666,305 (17%) as compared to prior year.
 
The decline was primarily due to engineering, research, and development expense decrease of $658,448 (36%) as compared to prior fiscal year that included customer project reimbursed engineering costs for the CRAFT ECP (U.S. Navy) project expense offsets.
 
Selling, general and administrative expenses, along with litigation expense, decreased $7,857 (.4%) to $2,124,815 for the year ended March 31, 2024, as compared to $2,132,672 for the year ended March 31, 2023.
 
Income (Loss) from Operations
 
As a result of the above, the Company recorded an income from operations in the amount of $736,788 for the fiscal year ended March 31, 2024, as compared to a net loss of $(898,120) for the fiscal year ended March 31, 2023.
 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
 
Other (Expense) Income, Net 
 
For the year ended March 31, 2024, total other (expense) income, net was $(216,954) as compared to $381,438 in the prior year or a $598,392 increase in expense. The prior year included income of $628,400 Employee Retention Tax Credits (“ERC”) the Company was eligible for. Fiscal year ended March 31, 2024 included line of credit interest of $68,780 compared to $0 in the prior fiscal year and offset by a decrease of $64,890 in judgement interest.
 
Income (Loss) before Income Taxes
 
As a result of the above, the Company recorded an income before taxes of $519,834 for the year ended March 31, 2024 as compared to a loss before taxes of $516,682 for the year ended March 31, 2023.
 
Income Tax Expense (Benefit) 
 
For the year ended March 31, 2024, the Company reported a tax provision of $177,943 as compared to a $(128,137) tax benefit in the prior year. The ERC interest included in year ended March 31, 2023 was a taxable event and the ERC refunds included in year ended March 31, 2023 were non-taxable events. The differences between income taxes expected at the U.S. federal statutory income tax rate of 21 percent and the reported income tax expense are due to the recognition of the non-taxable ERC of $628,400 as other income during fiscal year ended March 31, 2023.
 
Net Income (Loss)
 
As a result of the above, the Company recorded a net income of $341,891 for the year ended March 31, 2024, as compared to a net loss of $388,545 for the year ended March 31, 2023.
 
Liquidity and Capital Resources
 
On March 31, 2024, the Company had positive working capital of $4,249,777, as compared to working capital of $3,058,638 on March 31, 2023. The Company has approximately $132,000 of cash on hand at year-end. In September 2023, the Company paid $6.6 million related to the Aeroflex litigation after losing the appeal.
 
On April 1, 2024, Bank of America further extended the maturity date of our line of credit from June 30, 2024 to July 31, 2024. Additionally, the line of credit available was increased from $690,000 to $1,000,000.  Bank of America will begin the renewal of the line of credit in the coming weeks.
 
In September 2023, the Company raised $721,000 from the issuance of Preferred Stock. The Company entered into a definitive subscription agreement pursuant to which an accredited investor purchased 66,667 shares of the Company’s Series B Preferred Stock (the “Series B Preferred”) for $400,000. These funds were used for working capital purposes to support the orders received and expected in the near term. The Company also entered into a definitive subscription agreement pursuant to which two accredited investors purchased 53,500 shares of the Company’s Series C Preferred Stock (the “Series C Preferred”) in total for $321,000. These funds were used for working capital purposes to support the orders received and expected in the near term (one accredited investor is a member of the Board of Directors who invested $171,000 and the other accredited investor is a related party who invested $150,000).
 
Based on the foregoing, we believe that our expected cash flows from operations, and current cash balances will be sufficient to operate in the normal course of business for next 12 months from the issuance date of these financial statements.
 
During the year ended March 31, 2024, the Company’s cash balance decreased by $5,718,468 to $132,013. The Company’s principal sources, and uses of funds were as follows:
 
Cash used in operating activities. For the year ended March 31, 2024, the Company used $6,405,617 in cash for operations as compared to $1,694,126 in cash used in operations for the year ended March 31, 2023. This increase in cash used in operations is primarily attributed to the full payment of judgement and interest of approximately $6.6 million resulting from the Aeroflex appeal loss and increase in inventory levels due to projected backlog and increased revenues.
 
Cash used in investing activities. For the year ended March 31, 2024, the Company used $33,851 of its cash for investing activities, as compared to $26,133 used for investing activities for the year ended March 31, 2023.
 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
 
Liquidity and Capital Resources (continued)
 
Cash provided by financing activities. For the year ended March 31, 2024 the Company provided $721,000 from proceeds received from issuance of Preferred Stock. For the year ended March 31, 2023 the Company provided $690,000 in cash for financing activities from fully drawing upon its bank line of credit, offset by $80,000 in preferred dividend payments.
 
Currently, the Company has no material future capital expenditure requirements.
 
There was no significant impact on the Company’s operations as a result of inflation for the year ended March 31, 2024.
 
Critical Accounting Estimates
 
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis.
 
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our financial statements that require estimation but are not deemed critical, as defined above.
 
For a detailed discussion of our significant accounting policies and related judgments, see Note 2 of the Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
 
Off Balance Sheet Arrangements
 
The Company is not party to any off-balance sheet arrangements that may affect its financial position or its results of operations.
 
New Accounting Pronouncements
 
In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments -Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements. The amendment in this update replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. The effective date of the new standard is for fiscal years beginning after December 15, 2022, and was adopted by the Company on April 1, 2023. The adoption of this standard did not have a significant impact on our financial position and results of operations.
 
In November 2023, the FASB issued ASU 2023-07 “Segment Reporting: Improvements to Reportable Segment Disclosures”. This guidance expands public entities ‘segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity’s financial statements. We are currently evaluating this guidance to determine the impact it may have on our consolidated financial statements related disclosures.
 
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disaggregated information about our effective tax rate reconciliation as well as information on income taxes paid. The guidance will first be effective in our annual disclosures for the year ending December 31, 2026, and should be applied on a prospective basis with the option to apply retrospectively. Early adoption is permitted. The Company is in the process of assessing the impact of ASU 2023-09 on our disclosures.
 
No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s consolidated financial statements.
 

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
 
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information under this Item. Nonetheless, we do not hold any derivative instruments and do not engage in any hedging activities.
 
Item 8. Financial Statements and Supplementary Data
 
   (1) Financial Statements:                   Report of Independent Registered Public Accounting Firm (PCAOB ID: 688)   18               Consolidated Balance Sheets - March 31, 2024, and 2023   19               Consolidated Statements of Operations - Years Ended March 31, 2024 and 2023   20               Consolidated Statements of Changes in Stockholders’ Equity – Years Ended March 31 2024 and 2023   21               Consolidated Statements of Cash Flows - Years Ended March 31, 2024 and 2023   22               Notes to Consolidated Financial Statements   23  

 
 
 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
To the Stockholders and Board of Directors of
Tel-Instrument Electronics Corp.
 
Opinion on the Consolidated Financial Statements
 
We have audited the accompanying consolidated balance sheets of Tel-Instrument Electronics Corp.  (the “Company”) as of March 31, 2024 and 2023, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years ended March 31, 2024 and 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
 
Basis for Opinion
 
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
 
Critical Audit Matters
 
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
 
/s/ Marcum LLP
 
We have served as the Company’s auditor since 2019.
 
Marlton, New Jersey
June 28, 2024
 
 

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TEL-INSTRUMENT ELECTRONICS CORP.
Consolidated Balance Sheets
 



ASSETS

 

March 31, 2024

 
 

March 31, 2023

 



Current assets:

 
 
 
 
 
 
 
 



Cash

 
$
132,013
 
 
$
3,839,398
 



Accounts receivable, net

 
 
1,110,548
 
 
 
900,881
 



Inventories, net

 
 
5,411,644
 
 
 
3,586,065
 



Restricted cash to support appeal bond

 
 
-
 
 
 
2,011,083
 



Prepaid expenses and other current assets

 
 
214,161
 
 
 
817,625
 



Total current assets

 
 
6,868,366
 
 
 
11,155,052
 


 
 
 
 
 
 
 
 
 



Equipment and leasehold improvements, net

 
 
73,195
 
 
 
85,167
 



Operating lease right-of-use assets

 
 
1,324,463
 
 
 
1,526,551
 



Deferred tax asset, net

 
 
2,450,657
 
 
 
2,627,935
 



Other assets

 
 
35,109
 
 
 
35,109
 


 
 
 
 
 
 
 
 
 



Total assets

 
$
10,751,790
 
 
$
15,429,814
 


 
 
 
 
 
 
 
 
 



LIABILITIES AND STOCKHOLDERS’ EQUITY 

 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 



Current liabilities:

 
 
 
 
 
 
 
 



Line of credit

 
$
690,000
 
 
$
690,000
 



Operating lease liabilities - current portion

 
 
210,111
 
 
 
202,087
 



Accounts payable

 
 
1,276,935
 
 
 
322,582
 



Deferred revenues - current portion

 
 
72,803
 
 
 
123,117
 



Accrued expenses - vacation pay, payroll and payroll withholdings

 
 
248,713
 
 
 
240,034
 



Accrued legal damages

 
 
-
 
 
 
6,360,698
 



Accrued expenses - other

 
 
120,027
 
 
 
157,896
 



Total current liabilities

 
 
2,618,589
 
 
 
8,096,414
 


 
 
 
 
 
 
 
 
 



Operating lease liabilities – long-term

 
 
1,114,352
 
 
 
1,324,464
 



Other long term liabilities

 
 
45,501
 
 
 
53,416
 



Deferred revenues – long-term

 
 
119,721
 
 
 
173,883
 


 
 
 
 
 
 
 
 
 



Total liabilities

 
 
3,898,163
 
 
 
9,648,177
 


 
 
 
 
 
 
 
 
 



Commitments and contingencies

 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 


Stockholders’ equity
 
 
 
 
 
 
 
 


 Preferred stock, 1,000,000 shares authorized, par value $0.10 per share 
 
 
 
 
 
 
 
 


 Preferred stock, 500,000 shares 8% Cumulative Series A Convertible Preferred authorized, issued and outstanding, respectively par value $0.10 per share 
 
 
4,115,998
 
 
 
3,875,998
 


 Preferred stock, 320,000 shares 8% Cumulative Series B Convertible Preferred authorized; 233,334 and 166,667 issued and outstanding, par value $0.10 per share 
 
 
1,704,701
 
 
 
1,207,367
 


 Preferred stock, 166,667 shares 8% Cumulative Series C Convertible Preferred authorized; 53,500 and 0 issued, and outstanding, par value $0.10 per share 
 
 
335,215
 
 
 
-
 


 Common stock, 7,000,000 shares authorized, par value $.10 per share, 3,255,887 and 3,255,887 shares issued and outstanding, respectively 
 
 
325,586
 
 
 
325,586
 



Additional paid-in capital

 
 
6,379,085
 
 
 
6,721,535
 



Accumulated deficit

 
 
(6,006,958
)
 
 
(6,348,849
)


 
 
 
 
 
 
 
 
 



Total stockholders’ equity

 
 
6,853,627
 
 
 
5,781,637
 


 
 
 
 
 
 
 
 
 



Total liabilities and stockholders’ equity

 
$
10,751,790
 
 
$
15,429,814
 


 
The accompanying notes are an integral part of the consolidated financial statements.
 

19



Table of Contents



 
TEL-INSTRUMENT ELECTRONICS CORP.
Consolidated Statements of Operations
 


 
 

For the years ended March 31,

 


 
 

2024

 
 

2023

 


 
 
 
 
 
 
 
 
 



Net sales

 
$
8,809,087
 
 
$
8,631,157
 


 
 
 
 
 
 
 
 
 



Cost of sales

 
 
4,791,734
 
 
 
5,582,407
 


 
 
 
 
 
 
 
 
 



Gross margin

 
 
4,017,353
 
 
 
3,048,750
 


 
 
 
 
 
 
 
 
 



Operating expenses:

 
 
 
 
 
 
 
 



Selling, general and administrative

 
 
2,114,945
 
 
 
2,098,684
 



Litigation expenses

 
 
9,870
 
 
 
33,988
 



Engineering, research, and development

 
 
1,155,750
 
 
 
1,814,198
 


 
 
 
 
 
 
 
 
 



Total operating expenses

 
 
3,280,565
 
 
 
3,946,870
 


 
 
 
 
 
 
 
 
 



Income (loss) from operations

 
 
736,788
 
 
 
(898,120
)


 
 
 
 
 
 
 
 
 



Other income (expense):

 
 
 
 
 
 
 
 



Interest income

 
 
24,642
 
 
 
17,188
 



Interest expense

 
 
(70,086
)
 
 
(157
)



Interest expense – judgment

 
 
(198,535
)
 
 
(263,425
)



Other income, net

 
 
27,025
 
 
 
627,832
 


 
 
 
 
 
 
 
 
 



Total other (expense) income

 
 
(216,954
)
 
 
381,438
 


 
 
 
 
 
 
 
 
 



Income (loss) before income taxes

 
 
519,834
 
 
 
(516,682
)


 
 
 
 
 
 
 
 
 



Provision (benefit) for income taxes

 
 
177,943
 
 
 
(128,137
)


 
 
 
 
 
 
 
 
 



Net income (loss)

 
 
341,891
 
 
 
(388,545
)


 
 
 
 
 
 
 
 
 



Preferred dividends

 
 
(351,549
)
 
 
(320,000
)


 
 
 
 
 
 
 
 
 



Net loss attributable to common shareholders

 
$
(9,658
)
 
$
(708,545
)


 
 
 
 
 
 
 
 
 


Basic loss per common share
 
$
(0.00
)
 
$
(0.22
)


Diluted loss per common share
 
$
(0.00
)
 
$
(0.22
)


 
 
 
 
 
 
 
 
 



Weighted average number of shares outstanding

 
 
 
 
 
 
 
 


Basic and diluted
 
 
3,255,887
 
 
 
3,255,887
 


 
The accompanying notes are an integral part of the consolidated financial statements.
 

20



Table of Contents



 
TEL-INSTRUMENT ELECTRONICS CORP.
Consolidated Statements of Changes in Stockholders’ Equity
 


 
 

Series A Convertible 
Preferred Stock

 
 

Series B Convertible 
Preferred Stock

 
 

Series C Convertible 
Preferred Stock

 
 

Common Stock

 
 
 
 
 
 
 
 
 
 
 
 
 


 
 

# of Shares 
Issued

 
 

Amount

 
 

# of Shares 
Issued

 
 

Amount

 
 

# of Shares 
Issued

 
 

Amount

 
 

# of Shares 
Issued

 
 

Amount 

 
 

Additional 
Paid-In
Capital

 
 

Accumulated
Deficit

 
 

Total 

 



Balances at April 1, 2022

 
 
500,000
 
 
$
3,695,998
 
 
 
166,667
 
 
$
1,147,367
 
 
 
-
 
 
$
-
 
 
 
3,255,887
 
 
$
325,586
 
 
$
7,018,353
 
 
$
(5,960,304
)
 
$
6,227,000
 


 8% Dividends on Preferred Stock 
 
 
-
 
 
 
240,000
 
 
 
-
 
 
 
80,000
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(320,000
)
 
 
-
 
 
 
-
 



Dividend payments

 
 
-
 
 
 
(60,000
)
 
 
-
 
 
 
(20,000
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(80,000
)



Stock-based compensation

 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
23,182
 
 
 
-
 
 
 
23,182
 



Net loss

 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(388,545
)
 
 
(388,545
)



Balances at March 31, 2023

 
 
500,000
 
 
 
3,875,998
 
 
 
166,667
 
 
 
1,207,367
 
 
 
-
 
 
 
-
 
 
 
3,255,887
 
 
 
325,586
 
 
 
6,721,535
 
 
 
(6,348,849
)
 
 
5,781,637
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 8% Dividends on Preferred Stock 
 
 
-
 
 
 
240,000
 
 
 
-
 
 
 
97,334
 
 
 
-
 
 
 
14,215
 
 
 
-
 
 
 
-
 
 
 
(351,549
)
 
 
-
 
 
 
-
 



Issuance of Series B and C Preferred Stock

 
 
-
 
 
 
-
 
 
 
66,667
 
 
 
400,000
 
 
 
53,500
 
 
 
321,000
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
721,000
 



Stock-based compensation

 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
9,099
 
 
 
-
 
 
 
9,099
 



Net income

 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
341,891
 
 
 
341,891
 



Balances at March 31, 2024

 
 
500,000
 
 
$
4,115,998
 
 
 
233,334
 
 
$
1,704,701
 
 
 
53,500
 
 
$
335,215
 
 
 
3,255,887
 
 
$
325,586
 
 
$
6,379,085
 
 
$
(6,006,958
)
 
$
6,853,627
 


 
The accompanying notes are an integral part of the consolidated financial statements.
 

21



Table of Contents



 
TEL-INSTRUMENT ELECTRONICS CORP. 
Consolidated Statements of Cash Flows
 


 
 

For the years ended March 31,

 


 
 

2024

 
 

2023

 



Cash flows from operating activities:

 
 
 
 
 
 
 
 



Net income (loss)

 
$
341,891
 
 
$
(388,545
)



Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 
 
 
 
 
 
 
 



Deferred income taxes

 
 
177,278
 
 
 
(128,348
)



Depreciation and amortization

 
 
45,823
 
 
 
56,304
 



Non-cash lease expense

 
 
202,088
 
 
 
194,370
 



Recovery of inventory obsolescence

 
 
(75,271
)
 
 
(52,955
)



Non-cash stock-based compensation

 
 
9,099
 
 
 
23,182
 


 
 
 
 
 
 
 
 
 



Changes in assets and liabilities:

 
 
 
 
 
 
 
 



(Increase) decrease in accounts receivable

 
 
(209,667
)
 
 
148,159
 



Increase in inventories

 
 
(1,750,308
)
 
 
(712,613
)



Decrease (increase) in prepaid expenses and other assets

 
 
603,464
 
 
 
(573,585
)



Increase (decrease) in accounts payable

 
 
954,353
 
 
 
(83,907
)



(Decrease) increase in accrued legal damages

 
 
(6,360,698
)
 
 
263,425
 



(Decrease) increase in other long term liabilities

 
 
(7,915
)
 
 
53,416
 



Decrease in deferred revenues

 
 
(104,476
)
 
 
(111,906
)



Increase (decrease) in accrued payroll, vacation pay & withholdings

 
 
8,679
 
 
 
(170,504
)



Decrease in operating lease liabilities

 
 
(202,088
)
 
 
(194,370
)



Decrease in accrued expenses - other

 
 
(37,869
)
 
 
(16,249
)



Net cash used in operating activities

 
 
(6,405,617
)
 
 
(1,694,126
)


 
 
 
 
 
 
 
 
 



Cash flows from investing activities:

 
 
 
 
 
 
 
 



Acquisition of equipment

 
 
(33,851
)
 
 
(26,133
)



Net cash used in investing activities

 
 
(33,851
)
 
 
(26,133
)


 
 
 
 
 
 
 
 
 



Cash flows from financing activities:

 
 
 
 
 
 
 
 



Proceeds from issuance of Preferred Stock

 
 
721,000
 
 
 
-
 



Payment of dividends

 
 
-
 
 
 
(80,000
)



Draw from line of credit

 
 
-
 
 
 
690,000
 



Net cash provided by financing activities

 
 
721,000
 
 
 
610,000
 


 
 
 
 
 
 
 
 
 



Net decrease in cash and restricted cash

 
 
(5,718,468
)
 
 
(1,110,259
)



Cash and restricted cash at beginning of year

 
 
5,850,481
 
 
 
6,960,740
 



Cash and restricted cash at end of year

 
$
132,013
 
 
$
5,850,481
 


 
 
 
 
 
 
 
 
 



End of year

 
 
 
 
 
 
 
 



Cash

 
$
132,013
 
 
$
3,839,398
 



Restricted cash

 
 
-
 
 
 
2,011,083
 


 
 
$
132,013
 
 
$
5,850,481
 



Beginning of year

 
 
 
 
 
 
 
 



Cash

 
$
3,839,398
 
 
$
4,949,690
 



Restricted cash

 
 
2,011,083
 
 
 
2,011,050
 


 
 
$
5,850,481
 
 
$
6,960,740
 



Supplemental cash flow information:

 
 
 
 
 
 
 
 



Interest paid

 
$
 1,728,593 
 
 
$
157
 


 
The accompanying notes are an integral part of the consolidated financial statements.
 

22



Table of Contents



 
TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements
 
1. Business, Organization, and Liquidity
 
Business and Organization
 
Tel-Instrument Electronics Corp. (“Tel,” “TIC,” or the “Company”) has been in business since 1947. The Company is a leading designer and manufacturer of avionics test and measurement instruments for the global, commercial air transport, general aviation, and government/military defense markets. Tel provides instruments to test, measure, calibrate, and repair a wide range of airborne navigation and communication equipment. The Company sells its equipment in both domestic and international markets. Tel continues to develop new products in anticipation of customers’ needs and to maintain its strong market position. Its development of multi-function testers has made it easier for customers to perform ramp tests with less operator training, fewer test sets, and lower product support costs. The Company has become a major manufacturer and supplier of Identification Friend or Foe (“IFF”) flight line test equipment over the last two decades.
 
Liquidity 
 
On March 31, 2024, the Company had positive working capital of $4,249,777 as compared to working capital of $3,058,638 on March 31, 2023. The Company has approximately $132,000 of cash on hand at year-end. During September 2023, after the company losing the Aeroflex appeal, paid in full all judgements and interest of approximately $6.6 million.
 
On April 1, 2023, Bank of America further extended the maturity date of our line of credit from June 30, 2024 to July 31, 2024. Additionally, the line of credit available was increased from $690,000 to $1,000,000. Bank of America will begin the line of credit renewal process in the coming weeks. The Company believes it has sufficient cash on hand and expected cash flow from operations for the next twelve months due to the increase in business and the opportunities we have included in our projections. The Company’s operating profit will continue to improve, as well as our net income with the conclusion of the Aeroflex interest bearing judgment.
 
In September 2023, the Company raised $721,000 from the issuance of Preferred Stock. The Company entered into a definitive subscription agreement pursuant to which an accredited investor purchased 66,667 shares of the Company’s Series B Preferred Stock (the “Series B Preferred”) for $400,000. These funds were used for working capital purposes to support the orders received and expected in the near term. The Company also entered into a definitive subscription agreement pursuant to which two accredited investors purchased 53,500 shares of the Company’s Series C Preferred Stock (the “Series C Preferred”) in total for $321,000. These funds were used for working capital purposes to support the orders received and expected in the near term (one accredited investor is a member of the Board of Directors who invested $171,000 and the other accredited investor is a related party who invested $150,000).
 
There was an increase in our receipt of new orders with an open order back log of $7.2 million at March 31, 2024 as compared to the Company’s backlog at March 31, 2023 was $6.5 million.
 
In June 2024, the Company’s CEO provided a short term advance totaling $20,500.
 
Based on the foregoing, we believe that our expected cash flows from operations, and fulfillment of our $7.2 million open orders will be sufficient to operate in the normal course of business for next 12 months from the issuance date of these financial statements.
 
2. Summary of Significant Accounting Policies
 
Principles of Consolidation:
 
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include the Company and its wholly owned subsidiary. All significant inter-company accounts and transactions have been eliminated.
 
Leases:
 
The Company accounts for leases under Financial Accounting Standards Board (“FASB”) Topic 842, Accounting for Leases (“ASC 842). Under its core principle, a lessee recognizes a right-of-use (“ROU”) asset and a related lease liability on the balance sheet for most leases. The most significant change is on the balance sheet for lessees. For the income statement, the pattern of expense recognition depends on a lease’s classification. 


23



Table of Contents



 
TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements
 
2. Summary of Significant Accounting Policies (continued)
 
Leases (continued):
 
The Company determines if a contractual arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and noncurrent operating lease liabilities on the Company’s consolidated balance sheet. The Company evaluates and classifies leases as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. The Company’s real estate lease is classified as an operating lease. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments included in the present value are fixed lease payments. As most of the Company’s leases do not provide an implicit rate, the Company estimates its collateralized incremental borrowing rate, based on information available at the commencement date, in determining the present value of lease payments. The Company applies the portfolio approach in applying discount rates to its classes of leases. The operating lease ROU assets include any payments made before the commencement date. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not currently have subleases. The Company does not currently have residual value guarantees or restrictive covenants in its leases.
 
Revenue Recognition:
 
Under Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods and services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
 
The Company accounts for revenue recognition in accordance with ASC 606.The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services.
 
The Company generates revenue from designing, manufacturing, and selling avionic tests and measurement solutions for the global commercial air transport, general aviation, and government/military aerospace and defense markets. The Company also offers calibration and repair services for a wide range of airborne navigation and communication equipment.
 
Nature of goods and services
 
The following is a description of the products and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each. 


24



Table of Contents



 
TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements
 
2. Summary of Significant Accounting Policies (continued)
 
Revenue Recognition (continued):
 
Test Units/Sets 
 
The Company develops, and manufactures unit sets to test navigation and communication equipment, such as ramp testers and bench testers for radios installed in aircraft. The Company recognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms of the contract, usually at time of shipment. Revenue on products is presented gross because the Company is primarily responsible for fulfilling the promise to provide the product, is responsible to ensure that the product is produced in accordance with the related supply agreement and bears the risk of loss while the inventory is in-transit. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to the customer. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines stand-alone selling prices based on the price at which the performance obligation is sold separately. If the stand-alone selling price is not observable through past transactions, the Company estimates the standalone selling price considering available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
 
When determining the transaction price of a contract, an adjustment is made if payment from the customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of March 31, 2024.
 
Replacement Parts 
 
The Company offers replacement parts for test equipment, ramp testers, and bench testers. Similar to the sale of test units, the control of the product transfers at a point of time and therefore, revenue is recognized at the point in time when the obligation to the customer has been fulfilled.
 
Extended Warranties
 
The extended warranties sold by the Company provide a level of assurance beyond the coverage for defects that existed at the time of a sale or against certain types of covered damage with coverage terms generally ranging from 2 to 7 years. Amounts received for warranties are recorded as deferred revenue and recognized as revenue ratably over the respective term of the agreements. As of March 31, 2024, approximately $179,422 is expected to be recognized from remaining performance obligations for extended warranties as compared to $296,400 on March 31, 2023. For the year ended March 31, 2024, the Company recognized revenue of $122,378 from amounts that were included in Deferred Revenue as compared to $98,908 for the year ended March 31, 2023.
 
The following table provides a summary of the changes in deferred revenues related to extended warranties for the year ended March 31, 2024:
 



Deferred revenues related to extended warranties on April 1, 2023

 
$
296,400
 



Additional extended warranties

 
 
5,400
 



Revenue recognized for the year ended March 31, 2024

 
 
(122,378
)



Deferred revenues related to extended warranties on March 31, 2024

 
$
179,422
 

 


25



Table of Contents



 
TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements
 
2. Summary of Significant Accounting Policies (continued)
 
Revenue Recognition (continued):
 
Repair and Calibration Services 
 
The Company offers repair and calibration services for units that are returned for annual calibrations and/or for repairs after the warranty period has expired. The Company repairs and calibrates a wide range of airborne navigation and communication equipment. Revenue is recognized at the time the repaired or calibrated unit is shipped back to the customer, as it is at this time that the work is completed.
 
Other
 
The majority of the Company’s revenues are from contracts with the U.S. government, airlines, aircraft manufacturers, domestic distributors, international distributors for sales to military and commercial customers, and other commercial customers. The contracts with the U.S. government typically are subject to the Federal Acquisition Regulation (“FAR”) which provides guidance on the types of costs that are allowable in establishing prices for goods and services provided under U.S. government contracts. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within a range from 30 to 60 days, or in certain cases, up-front deposits. In circumstances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that the Company's contracts generally do not include a significant financing component. Payments received prior to the delivery of units or services performed are recorded as deferred revenues. The Company applied the practical expedient to account for shipping and handling activities as fulfillment cost rather than as a separate performance obligation. Shipping and handling costs charged to customers are classified as sales, and the shipping and handling costs incurred are included in cost of sales. All sales are denominated in U.S. dollars. The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers. The Company chose to apply the available practical expedient as commission eligible sales orders are fulfilled within less than one year and commissions are generally paid by the Company within 30 days of the related sales order fulfillment.
 
Disaggregation of revenue
 
In the following tables, revenue is disaggregated by revenue category.
 


 
 

For the Year Ended 
March 31, 2024

 


 
 

Commercial

 
 

Government

 



Sales Distribution 

 
 
 
 
 
 
 
 



Test Units & Engineering

 
$
638,375
 
 
$
6,625,865
 


 
 
$
638,375
 
 
$
6,625,865
 


 
The remainder of our revenues for the year ended March 31, 2024, are derived from repairs and calibration of $1,189,381 replacement parts of $205,079, extended warranties of $122,378 and other miscellaneous income of $28,009.
 


 
 

For the Year Ended 
March 31, 2023

 


 
 

Commercial

 
 

Government

 



Sales Distribution 

 
 
 
 
 
 
 
 



Test Units & Engineering

 
$
490,485
 
 
$
6,369,374
 


 
 
$
490,485
 
 
$
6,369,374
 


 
The remainder of our revenues for the year ended March 31, 2023, are derived from repairs and calibration of $1,462,048, replacement parts of $176,861, extended warranties of $98,908 and other miscellaneous income of $33,481. 


26



Table of Contents



 
TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements
 
2. Summary of Significant Accounting Policies (continued)
 
Revenue Recognition (continued):
 
In the following table, revenue is disaggregated by geography.
 


 
 

For the Year 
Ended 
March 31, 2024

 
 

For the Year 
Ended 
March 31, 2023

 



Geography 

 
 
 
 
 
 
 
 



United States

 
$
7,679,000
 
 
$
6,690,067
 



International

 
 
1,130,087
 
 
 
1,941,090
 



Total

 
$
8,809,087
 
 
$
8,631,157
 


 
Fair Value of Financial Instruments:
 
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured using inputs in one of the following three categories:
 
Level 1 measurements are based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment.
 
Level 2 measurements are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or market data other than quoted prices that are observable for the assets or liabilities.
 
Level 3 measurements are based on unobservable data that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
 
The Company considers cash, accounts receivable, accounts payable and accrued liabilities to meet the definition of financial instruments. As of March 31, 2024 and 2023, the carrying amount of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the relatively short period of time between their origination and their expected realization or payment.
 
Concentrations of Credit Risk:
 
Cash held in banks: The Company maintains cash balances at a financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to federally insured limits of $250,000. At times balances may exceed FDIC insured limits. Cash balances for fiscal year 2024 did not exceed the FDIC insured limit and approximately $3.6 million exceeded the FDIC insured limit for fiscal year 2023. The Company has not experienced any losses in such accounts.
 
Accounts Receivable: The Company’s avionics customer base is primarily comprised of airlines, distributors, and the U.S. Government. As of March 31, 2024, the Company believes it has no significant credit risk related to its concentration within its accounts receivable.
 
Inventories:
 
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. Inventories are reviewed for obsolescence and a reserve is recorded for inventory allowances if the estimated net realizable value is less than the recorded value. The Company reviews the carrying cost of inventories by product to determine the adequacy of reserves for obsolescence. In accounting for inventories, the Company must make estimates regarding the estimated realizable value of inventory. If actual conditions are less favorable than those we have projected, we may need to increase our reserves for excess and obsolete inventories. Any increases in our reserves will adversely impact our results of operations. Such reserves are not reduced until the product is sold. If we are able to sell such inventory any related reserves would be reversed in the period of sale. In accordance with industry practice, service parts inventory is included in current assets, although service parts are carried for established requirements during the serviceable lives of the products and, therefore, not all parts are expected to be sold within one year. 


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TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements
 
2. Summary of Significant Accounting Policies (continued)
 
Equipment and Leasehold Improvements:
 
Office and manufacturing equipment are stated at cost, net of accumulated depreciation. Depreciation and amortization are provided on a straight-line basis over periods ranging from 3 to 5 years. Leasehold improvements are amortized over the term of the lease or the useful life of the asset, whichever is shorter.
 
Maintenance, repairs, and renewals that do not materially add to the value of the equipment nor appreciably prolong its life are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in the Statement of Operations.
 
Engineering, Research and Development Costs:
 
Engineering, research, and development costs are expensed as incurred.
 
Net Loss per Common Share Attributable to Common Shareholders:
 
Net loss per share attributable to common stockholders has been computed according to Accounting Standards Codification (“ASC 260”), Earnings per Share, which requires a dual presentation of basic and diluted loss per share (“EPS”). Basic EPS attributable to common stockholders represents net loss less preferred dividends divided by the weighted average number of common shares outstanding during a reporting period. Diluted EPS attributable to common stockholders reflects the potential dilution that could occur if securities, including preferred stock, warrants and options, were converted into common stock. The dilutive effect of outstanding warrants and options is reflected in earnings per share by use of the treasury stock method. The dilutive effect of preferred stock is reflected in earnings per share by use of the if-converted method. In applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise and the amounts of average unrecognized compensation.
 
Income Taxes:
 
The Company accounts for income taxes using the asset and liability method described in FASB ASC 740, Income Taxes. Deferred tax assets arise from a variety of sources, the most significant being a) tax losses that can be carried forward to be utilized against profits in future years; b) expenses recognized for financial reporting purposes but disallowed in the tax return until the associated cash flow occurs; and c) valuation changes of assets which need to be tax effected for book purposes but are deductible only when the valuation change is realized.
 
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when such differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefit which is not more likely than not to be realized. In assessing the need for a valuation allowance, future taxable income is estimated, considering the realization of tax loss carryforwards. Valuation allowances related to deferred tax assets can also be affected by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event it was determined that the Company would not be able to realize all or a portion of our deferred tax assets in the future, we would reduce such amounts through a charge to income in the period in which that determination is made. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through an increase to income in the period in which that determination is made. In its evaluation of a valuation allowance the Company considers existing contracts and backlog, and the probability that options under these contract awards will be exercised as well as sales of existing products. The Company prepares profit projections based on the revenue and expenses forecast to determine that such revenues will produce sufficient taxable income to realize the deferred tax assets. 


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TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements
 
2. Summary of Significant Accounting Policies (continued)
 
Income Taxes (continued):
 
The Company accounts for uncertainties in income taxes under ASC 740-10-50 which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 requires that the Company determine whether the benefits of its tax positions are more-likely-than-not of being sustained upon audit based on the technical merits of the tax position. The Company recognizes the impact of an uncertain income tax position taken on its income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. The implementation of ASC 740-10 had no impact on the Company’s results of operations or financial position.
 
Despite the Company’s belief that its tax return positions are consistent with applicable tax laws, one or more positions may be challenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation. Interest and penalties related to income tax matters, if applicable, will be recognized as income tax expense. There are no uncertain tax positions that management is aware of as of March 31, 2024 and 2023.
 
During the years ended March 31, 2024 and 2023 the Company did not incur any expense related to interest or penalties for income tax matters, and no such amounts were accrued as of March 31, 2024 and 2023. The Company’s tax years remain open for examination by the tax authorities primarily beginning 2021 through present.
 
Stock-based Compensation:
 
The Company accounts for stock-based compensation in accordance with FASB ASC 718 which requires the measurement of stock-based compensation based on the fair value of the award on the date of grant. The Company recognizes compensation cost on awards on a straight-line basis over the vesting period, typically four years. The Company estimates the fair value of each option granted using the Black-Scholes option-pricing model. Additional information and disclosure are provided in Note 15 below.
 
Long-Lived Assets:
 
The Company assesses the recoverability of the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future, undiscounted cash flows expected to be generated by an asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No impairment losses have been recognized for the years ended March 31, 2024, and 2023, respectively.
 
Use of Estimates:
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates include income taxes, inventory, and accounts receivable valuations.
 
Accounts Receivable:
 
The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on customer payment and current credit worthiness, as determined by review of their current credit information. The Company continuously monitors credit limits for and payments from its customers and maintains provision for estimated credit losses based on its historical experience and any specific customer issues that have been identified. While such credit losses have historically been within the Company’s expectation and the provision established, the Company cannot guarantee that this will continue.
 
In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements. The amendment in this update replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. The effective date of the new standard is for fiscal years beginning after December15, 2022 and was adopted by the Company on April 1, 2023. The adoption of this standard to did not have a significant impact on our financial position and results of operations. 


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TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements
 
2. Summary of Significant Accounting Policies (continued)
 
Warranty Expenses:
 
Warranty reserves are based upon historical rates and specific items that are identifiable and can be estimated at time of sale. While warranty costs have historically been within the Company’s expectations and the provisions established, future warranty costs could be in excess of the Company’s warranty reserves. A significant increase in these costs could adversely affect the Company’s operating results for the period and the periods these additional costs materialize. Warranty reserves are adjusted from time to time when actual warranty claim experience differs from estimates. For the year ended March 31, 2024, warranty reserve costs were $18,047 as compared to $17,479 for the year ended March 31, 2023, and are included in Cost of Sales in the accompanying consolidated statement of operations. See Note 10 for warranty reserves.
 
Risks and Uncertainties:
 
The Company’s operations are subject to a number of risks, including but not limited to changes in the general economy, demand for the Company’s products, the success of its customers, research and development results, reliance on the government and commercial markets, litigation, and the renewal of its line of credit. The Company has major contracts with the U.S. Government, which like all government contracts are subject to termination.
 
The U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine as well as the military conflicts in the Middle East. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital and on the market price of our common stock, and we may not be able to successfully raise capital through the sale of our securities.
 
Recently Issued, Not Yet Effective Accounting Pronouncements
 
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disaggregated information about our effective tax rate reconciliation as well as information on income taxes paid. The guidance will first be effective in our annual disclosures for the year ending December 31, 2026, and should be applied on a prospective basis with the option to apply retrospectively. Early adoption is permitted. The Company is in the process of assessing the impact of ASU 2023-09 on our disclosures.
 
On November 2023, the FASB issued ASU 2023-07 Segment Reporting: Improvements to Reportable Segment Disclosures. This guidance expands public entities ‘segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity’s financial statements. We are currently evaluating this guidance to determine the impact it may have on our consolidated financial statements related disclosures.
 
No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s consolidated financial statements.
 
3. Accounts Receivable
 
The following table sets forth the components of accounts receivable:
 


 
 

March 31,

 


 
 

2024

 
 

2023

 



Government

 
$
933,249
 
 
$
651,370
 



Commercial

 
 
185,869
 
 
 
255,912
 



Less: Allowance for credit losses

 
 
(8,570
)
 
 
(6,401
)


 
 
$
1,110,548
 
 
$
900,881
 


 

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TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements
 
4. Inventories
 
Inventories consist of:
 


 
 

March 31,

 


 
 

2024

 
 

2023

 



Purchased parts

 
$
2,835,120
 
 
$
2,602,447
 



Work-in-process

 
 
2,912,737
 
 
 
1,388,679
 



Finished goods

 
 
48,630
 
 
 
55,052
 



Less: Allowance for obsolete inventory

 
 
(384,843
)
 
 
(460,113
)


 
 
$
5,411,644
 
 
$
3,586,065
 


 
Work-in-process inventory includes $1,066,665 and $973,216 for government contracts on March 31, 2024 and 2023, respectively.
 
5. Restricted Cash to Support Appeal Bond
 
In January 2018, the Company transferred $2,000,000 to a restricted cash account to secure a letter of credit which was used for collateral for the appeal bond (See Note 21). In September 2023, the restricted cash account funds of $2,011,083 which included interest earned, were used to make payment towards the final judgment. At March 31, 2024, the restricted cash balance was $0.
 
6. Prepaids and Other Current Assets
 
Prepaid expenses and other current assets consist of:
 


 
 

March 31,
2024

 
 

March 31,
2023

 


 
 
 
 
 
 
 
 
 



Prepaid expenses

 
$
186,231
 
 
$
148,929
 



Deferred charges

 
 
27,719
 
 
 
24,720
 



Other receivables

 
 
211
 
 
 
643,976
 


 
 
$
214,161
 
 
$
817,625
 


 
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was signed into law, providing numerous tax provisions and other stimulus measures, including the Employee Retention Tax Credit (“ERTC”): a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERTC. We qualified for the ERTC in the first two quarters of 2021. During year ended March 31, 2023, we recorded an aggregate benefit of $628,401 in our consolidated financial statements and the receivable for the ERTC benefit as of March 31, 2023 is in other current assets, which was received June 1, 2023.
 
7. Equipment and Leasehold Improvements
 
Equipment and leasehold improvements consist of the following:
 


 
 

March 31,

 


 
 

2024

 
 

2023

 



Leasehold improvements

 
$
127,655
 
 
$
127,655
 



Machinery and equipment

 
 
1,931,831
 
 
 
1,918,717
 



Automobiles

 
 
23,712
 
 
 
23,712
 



Sales equipment

 
 
590,365
 
 
 
609,875
 



Assets under finance leases

 
 
637,189
 
 
 
637,189
 



Less: Accumulated depreciation & amortization

 
 
(3,237,557
)
 
 
(3,231,981
)


 
 
$
73,195
 
 
$
85,167
 


 
Depreciation and amortization expense related to the assets above for the years ended March 31, 2024, and 2023 was $45,823 and $56,304, respectively.
 

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TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements (Continued)
 
8. Line of Credit
 
The Company has a line of credit with Bank of America with open availability up to $690,000 as of March 31, 2024, with monthly payments of interest only. The borrowing base calculation is tied to accounts receivable collateralized by substantially all of the assets of the Company. Interest on any outstanding balance is payable monthly at an annual interest rate equal to the sum of the greater of the BSBY (Bloomberg Short-Term Bank Yield Index rate) daily float plus 3.75 percentage points.
 
As of March 31, 2024, and March 31, 2023, the outstanding balances were $690,000 and $690,000, respectively. The interest rate on March 31, 2024, was 9.96%.
 
On April 1, 2024 Bank of America extended the Company line of credit with a maturity date of July 31, 2024, in addition the line of credit cash limit amount was increased from $690,000 to $1,000,000. Under the amendment, Interest on any outstanding balance is payable monthly at an annual interest rate equal to the Bank’s prime rate plus 1.05 percentage points and no less than 3.25%. The “Prime Rate” is the rate of interest publicly announced from time to time by the Bank as its Prime Rate. The Prime Rate is set by the Bank based on various factors, including the Bank’s costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing loans.
 
9. Right of Use Assets and Operating Lease Liability
 
The Company leases its facility in East Rutherford, NJ with monthly payments of $21,237 until August 2025. Thereafter, monthly payments are $23,083 for the balance of the 8 year lease agreement expiring August 2029.
 
The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company estimated its incremental borrowing rate based on its credit quality, line of credit agreement and by comparing interest rates available in the market for similar borrowings. The Company used a discount rate of 3.90%. The weighted average remaining lease term is 5.42 years.
 
The Company leases a small office in Lawrence, Kansas under an operating lease agreement which expired March 30, 2024, and was renewed for an additional 12 months, expiring on March 31, 2025.
 
Right to use assets is summarized below:
 


 
 

March 31,

 


 
 

2024

 
 

2023

 



Right to use asset

 
$
1,830,857
 
 
$
1,830,857
 



Less: Accumulated amortization

 
 
(506,394
)
 
 
(304,306
)



Right to use assets, net

 
$
1,324,463
 
 
$
1,526,551
 


 
The following table reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under non-cancelable operating leases with terms of more than one year to the total lease liabilities recognized on the consolidated balance sheet as of March 31, 2024:
 



2025

 
$
254,840
 



2026

 
 
267,767
 



2027

 
 
277,000
 



2028

 
 
277,000
 



2029

 
 
277,000
 



Thereafter

 
 
115,415
 



Total undiscounted future minimum lease payments

 
 
1,469,022
 



Less: Difference between undiscounted lease payments and discounted lease liabilities

 
 
(144,559
)



Present value of net minimum lease payments

 
 
1,324,463
 



Less current portion

 
 
(210,111
)



Operating lease liabilities – long-term

 
$
1,114,352
 

 


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TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements (Continued)
 
9. Right of Use Assets and Operating Lease Liability (continued)
 
During the year ended March 31, 2024 and 2023, the Company recorded $400,333 and $408,588, as lease expense to current period operations, respectively.
 
10. Accrued Expenses
 
Accrued vacation pay, payroll and payroll withholdings consist of the following:
 


 
 

March 31,

 


 
 

2024

 
 

2023

 


 
 
 
 
 
 
 
 
 



Accrued vacation pay

 
$
166,914
 
 
$
163,430
 



Accrued compensation and payroll withholdings

 
 
81,799
 
 
 
76,604
 


 
 
$
248,713
 
 
$
240,034
 


 
Accrued vacation pay, payroll and payroll withholdings include $22,451 and $26,535 on March 31, 2024, and 2023, respectively, which is due to officers.
 
Accrued expenses - other consist of the following:
 


 
 

March 31,

 


 
 

2024

 
 

2023

 


 
 
 
 
 
 
 
 
 



Accrued commissions

 
$
-
 
 
$
19,049
 



Warranty reserve

 
 
87,548
 
 
 
87,407
 



Accrued purchase

 
 
13,756
 
 
 
40,707
 



Other

 
 
18,723
 
 
 
10,733
 


 
 
$
120,027
 
 
$
157,896
 


 
11. Series A 8% Convertible Preferred Stock
 
The shares of Series A Preferred have a stated value of $6.00 per share (the “Series A Stated Value”) and are convertible into Common Stock at a price of $3.00 per share. The holders of shares of the Series A Preferred shall be entitled to receive dividends out of any assets legally available, to the extent permitted by New Jersey law, at an annual rate equal to 8% of the Series A Stated Value of such shares of Series A Preferred, calculated on the basis of a 360 day year, consisting of twelve 30-day months, and shall accrue from the date of issuance of such shares of Series A Preferred, payable quarterly in cash. Any unpaid dividends shall accrue at the same rate. To the extent not paid on the last day of March, June, September and December of each calendar year, all dividends on any share of Series A.
 
Preferred shall accumulate whether or not declared by the Board and shall remain accumulated dividends until paid. As of March 31, 2024, the Company recognized $1,170,667 as deemed dividends and are included in the carrying value of the Series A Convertible Preferred Stock. The Holders will vote together with the holders of the Company’s Common Stock on an as-converted basis on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). Effective beginning on the third anniversary of the Original Issue Date, and upon 30 days’ written notice to the Holders of Series A Preferred, the Company may, in its sole discretion, redeem the Series A Preferred at the aggregate Series A Stated Value plus any accrued and accumulated but unpaid dividends. During the years ended March 31, 2024 and 2023, the Company paid dividends of $0 and $60,000, respectively.
 
12. Series B 8% Convertible Preferred Stock
 
The shares of Series B Preferred to have a stated value of $6.00 per share (the “Series B Stated Value”) and are convertible into Common Stock at a price of $2.00 per share. The holder of shares of the Series B Preferred shall be entitled to receive dividends out of any assets legally available, to the extent permitted by New Jersey law, at an annual rate equal to 8% of the Series B Stated Value of such shares of Series B Preferred, calculated on the basis of a 360 day year, consisting of twelve 30-day months, and shall accrue from the date of issuance of such shares of Series B Preferred, payable quarterly in cash. Any unpaid dividends shall accrue at the same rate. To the extent not paid on the last day of March, June, September and December of each calendar year, all dividends on any share of Series B Preferred shall accumulate whether or not declared by the Board and shall remain accumulated dividends until paid. 


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TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements (Continued)
 
12. Series B 8% Convertible Preferred Stock (continued)
 
In September 2023, the Company entered into a definitive subscription agreement pursuant to which an accredited investor purchased 66,667 shares of the Company’s Series B Preferred Stock (the “Series B Preferred”) for $400,000. These funds were used for working capital purposes to support the orders received and expected in the near term. The shares of Series B Preferred to have a stated value of $6.00 per share (the “Series B Stated Value”) and are convertible into Common Stock at a price of $2.00 per share. The holder of shares of the Series B Preferred shall be entitled to receive dividends out of any assets legally available, to the extent permitted by New Jersey law, at an annual rate equal to 8% of the Series B Stated Value of such shares of Series B Preferred, calculated on the basis of a 360 day year, consisting of twelve 30-day months, and shall accrue from the date of issuance of such shares of Series B Preferred, payable quarterly in cash. Any unpaid dividends shall accrue at the same rate. To the extent not paid on the last day of March, June, December and December of each calendar year, all dividends on any share of Series B Preferred shall accumulate whether or not declared by the Board and shall remain accumulated dividends until paid.
 
As of March 31, 2024, the Company recognized $336,445 as deemed dividends and are included in the carrying value of the Series B Convertible Preferred Stock. The Holders will vote together with the holders of the Company’s Common Stock on an as-converted basis on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). Effective beginning on the third anniversary of the Original Issue Date, and upon 30 days’ written notice to the Holders of Series B Preferred, the Company may, in its sole discretion, redeem the Series B Preferred at the aggregate Series B Stated Value plus any accrued and accumulated but unpaid dividends. During the years ended March 31, 2024 and 2023, the Company paid dividends of $0 and $20,000, respectively.
 
13. Series C 8% Convertible Preferred Stock
 
In September 2023, the Company entered into a definitive subscription agreement pursuant to which two accredited investors purchased 53,500 shares of the Company’s Series C Preferred Stock (the “Series C Preferred”) in total for $321,000. These funds were used for working capital purposes to support the orders received and expected in the near term (one accredited investor is a member of the Board of Directors who invested $171,000 and the other accredited investor is a related party who invested $150,000).
 
The shares of Series C Preferred to have a stated value of $6.00 per share (the “Series C Stated Value”) and are convertible into Common Stock at a price of $2.00 per share. The holder of shares of the Series C Preferred shall be entitled to receive dividends out of any assets legally available, to the extent permitted by New Jersey law, at an annual rate equal to 8% of the Series C Stated Value of such shares of Series C Preferred, calculated on the basis of a 360 day year, consisting of twelve 30-day months, and shall accrue from the date of issuance of such shares of Series c Preferred, payable quarterly in cash. Any unpaid dividends shall accrue at the same rate. To the extent not paid on the last day of March, June, December and December of each calendar year, all dividends on any share of Series C Preferred shall accumulate whether or not declared by the Board and shall remain accumulated dividends until paid.
 
As of March 31, 2024, the Company recognized $14,215 as deemed dividends and are included in the carrying value of the Series C Convertible Preferred Stock. The Holders will vote together with the holders of the Company’s Common Stock on an as-converted basis on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). Effective beginning on the third anniversary of the Original Issue Date, and upon 30 days’ written notice to the Holders of Series C Preferred, the Company may, in its sole discretion, redeem the Series C Preferred at the aggregate Series C Stated Value plus any accrued and accumulated but unpaid dividends. During the year ended March 31, 2024, the Company paid dividends of $0.
 
14. Stock Option Plans
 
The Board of Directors (the “Board”) adopted on January 18, 2017, and ratified by the shareholders at the Annual Meeting on January 18, 2017, the Company’s 2016 Stock Option Plan (the “Plan”). The Plan provides for the granting of incentive stock options, by a committee to be appointed by the Board (both the Board and the Committee are referred to herein as the “Committee”) to directors, officers, and employees (excluding directors and officers who are not employees) to purchase shares of the Common Stock of the Company, par value $0.10 per share (the “Stock”), in accordance with the terms and provisions. The 2016 Plan reserves for issuance, options to purchase up to 250,000 shares of its common stock. Options granted under the plan are exercisable up to a period of five years from the date of grant at an exercise price which is not less than the fair market value of the common stock at the date of grant, except to a shareholder owning 10% or more of the outstanding common stock of the Company, as to which the exercise price must be not less than 110% of the fair market value of the common stock at the date of grant. Options are exercisable on a cumulative basis, 20% at or after each of the first, second, and third anniversary of the grant and 40% after the fourth year anniversary. During fiscal year 2024, the Company did not grant any stock options. 


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TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements (Continued)
 
14. Stock Option Plans (continued)
 
A summary of the status of the Company’s stock option plans for the fiscal years ended March 31, 2024, and 2023 and changes during the years are presented below (in number of options):
 
       Number of  Options       Average  Exercise Price     Average Remaining Contractual Term     Aggregate  Intrinsic Value                                                                   Outstanding options on April 1, 2022      111,500     $ 3.14    2.72 years    $ 3,680      Options granted      -     $ -                Options exercised      -     $ -                Options canceled/forfeited      (12,500 )   $ 3.16                                              Outstanding options on March 31, 2023      99,000     $ 3.13    1.78 years    $ -      Options granted      -     $ -                Options exercised      -     $ -                Options canceled/forfeited      -     $ -                                              Outstanding options on March 31, 2024      99,000     $ 3.13    0.78 years    $ -                                                                  Vested Options:                               March 31, 2024:      82,200     $ 3.16    0.5 years    $ -      March 31, 2023:      49,200     $ 3.16    1.5 years    $ -   

 
Remaining options available for grant were 151,000 of March 31, 2024.
 
For the year ended March 31, 2024 the unamortized compensation expense for stock options was $8,565. Unamortized compensation expense is expected to be recognized over a weighted-average period of approximately 2.7 years.
 
The compensation cost that has been charged was $9,099 and $23,182 for the fiscal years ended March 31, 2024, and 2023, respectively.
 
15. Income Taxes
 
Income tax provision (benefit):
 


 
 

Fiscal Year Ended

 


 
 

March 31,

 
 

March 31,

 


 
 

2024

 
 

2023

 



Current:

 
 
 
 
 
 
 
 



Federal

 
$
-
 
 
$
-
 



State and local

 
 
665
 
 
 
211
 


 
 
 
 
 
 
 
 
 



Total current tax provision

 
 
665
 
 
 
211
 


 
 
 
 
 
 
 
 
 



Deferred:

 
 
 
 
 
 
 
 



Federal

 
 
146,595
 
 
 
(120,422
)



State and local

 
 
30,683
 
 
 
(7,926
)


 
 
 
 
 
 
 
 
 



Total deferred tax provision (benefit)

 
 
177,278
 
 
 
(128,348
)


 
 
 
 
 
 
 
 
 



Total provision (benefit)

 
$
177,943
 
 
$
(128,137
)

 


35



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TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements (Continued)
 
15. Income Taxes (continued)
 
The approximate values of the components of the Company’s deferred taxes on March 31, 2024, and 2023 are as follows:
 


 
 

March 31,

 
 

March 31,

 


 
 

2024

 
 

2023

 



Deferred tax assets (liabilities):

 
 
 
 
 
 
 
 



Net operating loss carryforwards

 
$
1,234,075
 
 
$
566,694
 



Tax credits

 
 
342,218
 
 
 
329,032
 



Charitable contributions

 
 
53
 
 
 
54
 



Legal damages

 
 
-
 
 
 
1,363,176
 



Allowance for credit losses

 
 
1,817
 
 
 
1,372
 



Reserve for inventory obsolescence

 
 
81,609
 
 
 
98,608
 



Vacation accrual

 
 
35,396
 
 
 
35,025
 



Warranty reserve

 
 
18,565
 
 
 
18,732
 



Deferred revenues

 
 
25,388
 
 
 
63,651
 



Stock options

 
 
-
 
 
 
16,001
 



Gain on Sale of Asset

 
 
350
 
 
 
354
 



Depreciation

 
 
13,052
 
 
 
5,986
 



174 Capitalization

 
 
835,914
 
 
 
229,250
 



Deferred tax asset

 
 
2,588,437
 
 
 
2,727,935
 



Less valuation allowance

 
 
(137,780
)
 
 
(100,000
)


 
 
 
 
 
 
 
 
 



Deferred tax asset, net

 
$
2,450,657
 
 
$
2,627,935
 


 
The recognized deferred tax assets are based upon the expected utilization of their benefit from future taxable income. The Company has federal net operating loss (“NOL”) carryforwards of $5,836,933 as of March 31, 2024. These loss carryforwards are available to offset future taxable income and a certain amount are subject to expiration, beginning in the year 2033. The current year federal NOL of approximately $3,173,465 does not expire. New Jersey state NOL carryforwards $31,777 as of March 31, 2024. New Jersey state NOL carryforwards expire in 20 years, and certain of these amounts begin to expire in 2038. Kansas state NOL carryforwards $135,175 as of March 31, 2024. Kansas state NOL carryforwards do not expire.
 
The foregoing amounts are management’s estimates, and the actual results could differ from those estimates. Future profitability in this competitive industry depends on continually obtaining and fulfilling new profitable sales agreements and modifying products. The inability to obtain new profitable contracts or the failure of the Company’s engineering development efforts could reduce estimates of future profitability, which could affect the Company’s ability to realize the deferred tax assets. For the year ended March 31, 2024, the Company reported a tax provision of $177,943 as compared to a $(128,137) tax benefit in the prior year. The ERC interest included in year ended March 31, 2023 was a taxable event and the ERC refunds included in year ended March 31, 2023 were non-taxable events.
 
The differences between income taxes expected at the U.S. federal statutory income tax rate of 21 percent and the reported income tax expense are due to the recognition of the non-taxable ERC of $628,400 as other income during fiscal year ended March 31, 2023. A reconciliation of the income tax expense (benefit) provision at the statutory Federal tax rate of 21% for the years ended March 31, 2024, and 2023, respectively, to the income tax benefit provision recognized in the financial statements is as follows:
 


 
 

March 31,

 
 

March 31,

 


 
 

2024

 
 

2023

 


 
 
 
 
 
 
 
 
 



Income tax provision – statutory rate

 
$
109,165
 
 
$
(108,503
)



Income tax expenses – state and local, net of federal benefit

 
 
(170
)
 
 
(3,966
)



Permanent items

 
 
2,335
 
 
 
(126,355
)



Valuation Allowance

 
 
37,780
 
 
 
-
 



Rate changes

 
 
19,103
 
 
 
(21,942
)



True ups

 
 
9,730
 
 
 
132,629
 



Income tax provision (benefit)

 
$
177,943
 
 
$
(128,137
)


 

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TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements (Continued)
 
16. Net Income (Loss) per Share
 
Net income (loss) per share attributable to common stockholders has been computed according to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC 260”), “Earnings per Share,” which requires a dual presentation of basic and diluted income (loss) per share (“EPS”). Basic EPS attributable to common stockholders represents net income (loss) less preferred dividends divided by the weighted average number of common shares outstanding during a reporting period. Diluted EPS attributable to common stockholders reflects the potential dilution that could occur if securities, including preferred stock and options, were converted into common stock. The dilutive effect of outstanding options is reflected in earnings per share by use of the treasury stock method. The dilutive effect of preferred stock is reflected in earnings per share by use of the if-converted method. In applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise and the amounts of average unrecognized compensation.
 


 
 

March 31, 2024

 
 

March 31, 2023

 



Basic net income (loss) per share computation:

 
 
 
 
 
 
 
 



Net income (loss)

 
$
341,891
 
 
$
(388,545
)



Less: Preferred dividends

 
 
(351,549
)
 
 
(320,000
)


 
 
 
 
 
 
 
 
 



Net income (loss) attributable to common shareholders

 
 
(9,658
)
 
 
(708,545
)



Weighted-average common shares outstanding

 
 
3,255,887
 
 
 
3,255,887
 



Basic net income (loss) per share

 
$
0.00
 
 
$
(0.22
)


 
The following table summarizes securities that, if exercised, would have an anti-dilutive effect on earnings per share:
 


 
 

March 31, 2024

 
 

March 31, 2023

 



Convertible preferred stock

 
 
2,426,052
 
 
 
1,862,278
 



Stock options

 
 
99,000
 
 
 
99,000
 


 
 
 
2,525,052
 
 
 
1,961,278
 


 
17. Related Parties
 
The Company has obtained marketing and sales services from a brother-in-law of the Company’s CEO with the related fees and commissions amounting to $115,942 and $145,446 for the years ended March 31, 2024, and 2023, respectively. On March 31, 2024, $66,155 was due this individual, which is included in accounts payable in the accompanying consolidated balance sheet.
 
18. Employee Benefit Plan
 
The Company sponsors a 401k Plan in which employee contributions on a pre-tax basis are supplemented by matching contributions by the Company. The Company charged to operations $ 53,324 and $58,090 as its matching contribution to the Company’s 401k Plan for the years ended March 31, 2024 and 2023, respectively.
 

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TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements (Continued)
 
19. Significant Customer Concentrations
 
Domestic commercial sales are made throughout the U.S. to commercial airlines and general aviation businesses directly or through distributors. There were $2,113,567 in domestic commercial sales in fiscal year 2024 and there was two (2) direct commercial customer who accounted for 24% and 19% of domestic commercial sales, respectively. The Company has one domestic distributor which receives discounts ranging between 16%-20% discount for stocking, selling, and, in some cases, providing product calibration and repairs. The loss of this distributor would not have a material adverse effect on the Company or its operations.
 
Our commercial distributor represented approximately 24% and 19%, respectively, of commercial sales during fiscal years 2024 and 2023.
 
Marketing to the U.S. Government is made directly by employees of the Company or through independent sales representatives, who receive similar commissions to the commercial distributors. For the years ended March 31, 2024, and 2023, sales to the U.S. Government, including shipments through the government’s logistics centers, represented approximately 5% and 18%, respectively, of total sales.
 
For the year ended March 31, 2024, two (2) direct customers represented 28% and 10% of total sales and 31%, 13% and 10% of government sales, respectively. No international distributors represented 10% or more of total sales or of total government sales for the year ended March 31, 2024. For the year ended March 31, 2023, two (2) direct customers represented 17% and 11% of total sales and 16%, 13% and 11% of government sales, respectively. No international distributors represented 10% or more of total sales or of total government sales for the year ended March 31, 2023.
 
Net sales to foreign customers, which, for the most part, are international distributors were $1,130,087 and $1,941,090 for the years ended March 31, 2024, and 2023, respectively. All other sales were to customers located in the U.S. The following table presents net sales by U.S. and foreign countries:
 


 
 

2024

 
 

2023

 



United States

 
$
7,679,000
 
 
$
6,690,067
 



Foreign countries

 
 
1,130,087
 
 
 
1,941,090
 



Total Avionics Sales

 
$
8,809,087
 
 
$
8,631,157
 


 
Net sales related to any single foreign country more than 10% of consolidated net sales included two (2) foreign countries for fiscal year ended March 31, 2024. They were Korea (35%) and United Kingdom (30%). There were no net sales related to any single foreign country more than 10% of consolidated net sales for fiscal year ended March 31, 2023.
 
The Company had no assets outside the United States. Receivables from the U.S. Government represented approximately 6% and 11%, respectively, of total receivables on March 31, 2024, and 2023, respectively. As of March 31, 2024, there were two individual customers that represented 33% and 15% respectively of the Company’s total outstanding accounts receivable. As of March 31, 2023, one individual customer represented 25% of the Company’s outstanding accounts receivable.
 
The Company had one individual vendor that represented 18% of payables as of March 31, 2024 and no individual vendor representing over 10% of payables as of March 31, 2023.
 
Total sales by test set product that were more than 10% of consolidated net sales were the AN/USM-708 (13%) and the T-47/M5 (11%) for the year ended March 31, 2024. Total sales by test set product that were more than 10% of consolidated net sales were the T-47/M5 dual (17%) and AN/USM-708 (25%) for the year ended March 31, 2023.
 

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TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements (Continued)
 
20. Segment Information
 
In accordance with FAS ASC 280, “Disclosures about Segments of an Enterprise and related information”, the Company determined it has two reportable segments - avionics government and avionics commercial. There are no inter-segment revenues.
 
The Company is organized primarily on the basis of its avionics products. The avionics government segment consists primarily of the design, manufacture, and sale of test equipment to the U.S. and foreign governments and militaries either directly or through distributors. The avionics commercial segment consists of design, manufacture, and sale of test equipment to domestic and foreign airlines, directly or through commercial distributors, and to general aviation repair and maintenance shops. The Company develops and designs test equipment for the avionics industry and as such, the Company’s products and designs cross segments.
 
Management evaluates the performance of its segments and allocates resources to them based on gross margin. The Company’s general and administrative costs and sales and marketing expenses, and engineering costs are not segment specific. As a result, all operating expenses are not managed on a segment basis. Net interest includes expenses on debt and income earned on cash balances, both maintained at the corporate level. Segment assets include accounts receivable and work-in-process inventory. Asset information, other than accounts receivable and work-in-process inventory, is not reported since the Company does not produce such information internally. All long-lived assets are located in the U.S.
 
The tables below present information about reportable segments for the years ended March 31:
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 

Corporate/

 
 
 
 
 


 
 

Avionics

 
 

Avionics

 
 

Avionics

 
 

Reconciling

 
 
 
 
 



2024

 

Government

 
 

Commercial

 
 

Total

 
 

Items

 
 

Total

 



Net sales

 
$
6,625,865
 
 
$
2,183,222
 
 
$
8,809,087
 
 
$
-
 
 
$
8,809,087
 



Cost of sales

 
 
3,256,280
 
 
 
1,535,454
 
 
 
4,791,734
 
 
 
-
 
 
 
4,791,734
 



Gross margin

 
 
3,369,585
 
 
 
647,768
 
 
 
4,017,353
 
 
 
-
 
 
 
4,017,353
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Total expenses (income)

 
 
 
 
 
 
 
 
 
$
2,063,249
 
 
$
1,434,270
 
 
 
3,497,519
 



Income (loss) before income taxes

 
 
 
 
 
 
 
 
 
$
1,954,104
 
 
$
(1,434,270
)
 
$
519,834
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Segment Assets

 
 
 
 
 
 
 
 
 
$
6,540,832
 
 
$
4,210,958
 
 
$
10,751,790
 


 


 
 
 
 
 
 
 
 
 
 
 
 
 
 

Corporate/

 
 
 
 
 


 
 

Avionics

 
 

Avionics

 
 

Avionics

 
 

Reconciling

 
 
 
 
 



2023

 

Government

 
 

Commercial

 
 

Total

 
 

Items

 
 

Total

 



Net sales

 
$
6,369,374
 
 
$
2,261,783
 
 
$
8,631,157
 
 
$
-
 
 
$
8,631,157
 



Cost of sales

 
 
3,841,293
 
 
 
1,741,114
 
 
 
5,582,407
 
 
 
-
 
 
 
5,582,407
 



Gross margin

 
 
2,528,081
 
 
 
520,669
 
 
 
3,048,750
 
 
 
-
 
 
 
3,048,750
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Total expenses (income)

 
 
 
 
 
 
 
 
 
$
2,492,112
 
 
$
1,073,320
 
 
 
3,565,432
 



Income (loss) before income taxes

 
 
 
 
 
 
 
 
 
$
556,638
 
 
$
(1,073,320
)
 
$
(516,682
)


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Segment Assets

 
 
 
 
 
 
 
 
 
$
4,486,946
 
 
$
10,942,868
 
 
$
15,429,814
 


 

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TEL-INSTRUMENT ELECTRONICS CORP.
 
Notes To Consolidated Financial Statements (Continued)
 
21. Litigation
 
Currently, we are not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of executive officers of our Company, threatened against or affecting our Company, or our common stock in which an adverse decision could have a material effect.
 
The Aeroflex litigation did not result in a favorable outcome for the Company, despite our belief that we committed no wrongdoing. We have paid the $6.6 million judgment and interest in full and there are no outstanding obligations related to the Aeroflex litigation. The jury found no misappropriation of Aeroflex trade secrets but found that the Company tortiously interfered with a prospective business opportunity and awarded damages. The jury also found that TIC tortiously interfered with Aeroflex’s non-disclosure agreements with two former Aeroflex employees, and that the former Aeroflex employees breached their non-disclosure agreements with Aeroflex. Upon appeal, a decision on the case was rendered and released on July 21, 2023, the Kansas Appeals Court rejected each of TIC’s appeal arguments. TIC paid the full judgement and interest in the amount of $6,559,233 on September 15, 2023, including interest of $1,659,233.
 

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Table of Contents



 
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.
 
Item 9A. Controls and Procedures
 
a) Evaluation of disclosure controls and procedures
 
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and subject to the foregoing, our chief executive officer and chief financial officer concluded that, our disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.
 
b) Management’s Annual Report on Internal Control over Financial Reporting
 
Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2024 based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that our internal control over financial reporting as of March 31, 2024 was not effective.
 
A material weakness, as defined in the standards established by the Sarbanes-Oxley is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
 
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses:
 



●


Lack of adherence to formal policies and procedures with inventory controls.



 
Management’s Plan to Remediate the Material Weakness
 
Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include:
 



●


Management personnel, including our Chief Accounting Officer, are overseeing the financial reporting process and implementation of enhanced controls and governance;




●


Formation of an internal task team to enhance weaknesses over inventory movement, valuation, and internal controls.



 
Management is committed to maintaining a strong internal controls environment and implementing measures designed to help ensure that control deficiencies contributing to the material weakness are remediated as soon as possible. We have documented key procedures and controls using a risk-based approach and have, therefore, made progress toward remediation. We continue to implement our remediation plan, which includes continued engagement of an external financial consulting firm to enhance financial reporting and operations as well as design and implementation of controls. We will consider the material weakness remediated after the applicable controls operate for a sufficient period of time, and Management has concluded, through testing, that the controls are operating effectively.
 

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Table of Contents



 
Item 9A. Controls and Procedures (continued)
 
We will continue to monitor and evaluate the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
 
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that exempt smaller reporting companies from this requirement.
 
c) Changes in Internal Control over Financial Reporting
 
Other than described above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fourth quarter of the year ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Item 9B. Other Information
 
None.
 
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
 
Not applicable.
 
 
 
 
 
 
 

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Table of Contents



 
PART III
 
Item 10. Directors, Executive Officers, and Corporate Governance
 
Each of our directors holds office until the next annual meeting of our stockholders or until his or her successor has been elected and qualified, or until his or her earlier death, resignation, or removal. Our executive officers are appointed by our Board and serve until their respective successors are elected and appointed and qualify until their earlier resignation or removal from office.
 
Our current directors and executive officers, their ages, positions held, and duration of such, are as follows:
 



Name (age)


 


Position


 


Year First
Elected a director




Stephen A. Fletcher (1)
(63)


 


Director


 


2011




 


 


 


 


 




George J. Leon (2) (3)
(79)


 


Director


 


1986




 


 


 


 


 




Jeffrey C. O’Hara, CPA (1) (4)
(66)


 


Director; President since August 2007; Chief Executive Officer since December 2010; Chief Operating Officer since June 2006; Vice President since 2005


 


1998




 


 


 


 


 




Robert A. Rice (2) (3)
(68)


 


Director


 


2004




 


 


 


 


 




Robert H. Walker (2) (3) (5)
(88)


 


Director and Chairperson of the Board since April 2011


 


1984




 


 


 


 


 




Pauline Romeo (6)
(61)


 


Chief Accounting Officer since February 2021


 


2021



 



 


(1)


Mr. Fletcher is the son of Mr. Harold K. Fletcher, the former Chairperson of the Company who passed away in April 2011, and the brother-in-law of Jeffrey C. O’Hara, the Company’s Chief Executive Officer




 


 


 




 


(2)


Member of the Audit Committee




 


 


 




 


(3)


Member of the Compensation Committee




 


 


 




 


(4)


Mr. O’Hara has served as a member of the Board since 1998 and was appointed President of the Company in 2007, and as Chief Executive Officer in December 2010.




 


 


 




 


(5)


Mr. Walker has served as a member of the Board since 1984 and was appointed Chairperson of the Board in April 2011.




 


 


 




 


(6)


Ms. Romeo was appointed as Chief Accounting Officer in February 2021.



 
Background of Directors and Officers
 
Stephen A. Fletcher is the former Chief Executive Officer of Rand McNally, the country’s most trusted source for maps, navigation, and travel content (“Rand”). At Rand, Mr. Fletcher is driving growth of the Company’s consumer and enterprise businesses through rapid expansion of core product lines and continued innovation of commercial transportation solutions ranging from advanced mileage and routing software to fleet management and electronic tracking. Prior to Rand, Mr. Fletcher served as a WW general manager at Kodak for more than six years and led a far-reaching organization with operations around the globe including research and development in the US, Germany and Singapore and manufacturing in the US, China, and Mexico. Before Kodak, he was President and COO of Konica Minolta Printing Solutions in Ramsey, New Jersey where he quadrupled the business over six years. Mr. Fletcher was also President and CEO of the Tally Printer Corporation in Seattle, Washington and held marketing management positions at Apple Computer and Hewlett Packard.
 

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Table of Contents



 
Item 10. Directors, Executive Officers, and Corporate Governance (continued)
 
Background of Directors and Officers (continued)
 
George J. Leon has served as a member of the Board since 1986. Mr. Leon has substantial experience in finance, and as an investment manager. He is and has been an Investment Manager and beneficiary of the George Leon Family Trust for more than five (5) years.
 
Jeffrey C. O’Hara, CPA has served as a member of the Board since 1998, and was made a Vice President in 2005, COO in 2006, and has been President since 2007. Mr. O’Hara was appointed Chief Executive Officer of the Company in December 2010. Prior to joining the Company, Mr. O’Hara held various management positions at General Motors, and other mid- sized private companies. Mr. O’Hara has extensive financial; marketing and operations experience and he has held executive positions as both a Chief Financial Officer and President. Mr. O’Hara has also served on several boards of directors of other companies.
 
Robert H. Walker has served as member of our Board since 1984 and was elected Chairperson of the Board in April 2011. Mr. Walker, prior to his retirement in 1998, had served as Executive Vice President of Robotic Vision Systems, Inc., which designs, manufactures, markets, and sells automated two-dimensional and three-dimensional machine vision-based products and systems for inspection, measurement, and identification. Mr. Walker also served as Chief Financial Officer of that company, whose shares were listed on the NASDAQ National Market. Mr. Walker qualifies as the Company’s “Audit Committee Financial Expert” as defined in the regulations promulgated under the Securities Exchange Act.
 
Robert A. Rice has served as a member of the Board since 2004. Mr. Rice is, and has been for more than 5 years, President and Owner of Spurwink Cordage, Inc., a textile manufacturing company located in New England, and is experienced in securities matters and business management.
 
Pauline Romeo combines over 30 years of senior financial management experience with private and publicly held manufacturing and distribution companies. Previously, from 2020 to 2021, she had been the Senior Controller and Acting CFO for Biazzo Dairy Products Inc., a large privately held food manufacturing company. From 2019 to 2020, Ms. Romeo was Group Financial Controller/Acting Chief Financial Officer for Sycamore Foods, Inc., a wholesale produce distribution company. Prior to that, she worked for six years as the Finance Director/Senior Controller at BioHiTech Global Inc. a NASDAQ-listed company that manufactures food waste disposal equipment. Ms. Romeo has an accounting degree from St. Peter’s University.
 
Family Relationships
 
As described above, Stephen Fletcher is the son of the Company’s former Chairperson and the brother-in-law of the Company’s Chief Executive Officer, Jeffrey O’Hara.
 
Corporate Governance and Board Meetings
 
The Board is responsible for supervision of the overall affairs of the Company. The Board held three meetings during fiscal year 2024 and a majority of the nominee directors attended all of the meetings. The Company expects directors to attend all formal Board, committee, and shareholder meetings. Three of the directors, Messrs. Leon, Rice, and Walker, are independent as that term is defined under the Securities Exchange Act of 1934.
 
Robert H. Walker was elected Chairperson of the Board by the directors at their April 13, 2011 meeting of the Board upon the passing of Harold K. Fletcher who had been Chief Executive Officer and Chairperson of the Board since 1982. Jeffrey C. O’Hara was elected the Chief Executive Officer in December 2010.
 
The Board and, separately, the Audit Committee review and provide oversight of risks and potential risks involving the Company’s operations. The Board reviews and evaluates the process used to assess major risks facing the company and to periodically review assessments prepared by senior management of such risks, as well as options for their mitigation. Frequent interaction between the directors and members of senior management assists in this effort. The Board regularly reviews information regarding our liquidity and operations, as well as the risks associated with each. The Audit Committee is responsible for overseeing the management of financial and accounting risks. The Compensation Committee is responsible for overseeing the management of risk-taking relating to executive compensation plans and arrangements.
 
To assist it in carrying out its duties, the Board has delegated certain authority to committees. The Board has established standing Audit and Compensation Committees and has delegated nominating responsibility to the three directors who are independent as that term is defined under the Securities Exchange Act of 1934. Our Audit and Compensation Committees consist of only independent, non-employee directors.
 

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Table of Contents



 
Item 10. Directors, Executive Officers, and Corporate Governance (continued)
 
Audit Committee
 
The Board established a separately designated standing Audit Committee in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The Audit Committee is comprised of Messrs. Walker (Chairperson), Leon, and Rice. Messrs. Walker, Leon, and Rice are independent, as that term is defined under the Securities Exchange Act of 1934. Mr. Walker is a financial expert as defined in the rules promulgated by the SEC pursuant to that Act. Mr. Walker served as director and Executive Vice President of Robotic Vision Systems, Inc., a public company, and as its principal financial officer for over 15 years.
 
The Audit Committee reviews the Company’s financial statements, and oversees the Company’s accounting, audits, internal controls, and adherence to its Business Conduct Guidelines. The Committee also appoints and recommends to the Board the Company’s independent registered public accounting firm and reviews, evaluates, and approves the independent registered public accountants’ compensation, services performed, and procedures for ensuring its independence with respect to the Company. The Board has adopted a written charter for the Audit Committee, a copy of which is annexed as Exhibit A.
 
During fiscal 2024, all three members of the Audit Committee attended all four (4) of the Audit Committee meetings. In the opinion of the Board, and as defined under the Securities Exchange Act of 1934, Messrs. Walker, Leon, and Rice are independent of management and free of any relationship which might interfere with their exercise of independent judgment as members of this committee.
 
The Audit Committee has: (i) reviewed and discussed with management, and with Marcum LLP, (the “Auditor”) the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2024; (ii) reviewed and discussed with management, and with our Auditor the Company’s interim financial statements for the periods ended June 30, 2023, September 30, 2023 and December 31, 2023; (iii) discussed with the Auditor the matters required to be discussed by PCAOB Standard 16, as amended, as adopted by the Public Company Accounting Oversight Board; (iv) received the written disclosures and the letter from the Auditor required by applicable requirements of the Public Company Accounting Oversight Board regarding the Auditor’ communications with the Audit Committee concerning independence; and (v) discussed with the Auditor their independence from the Company. The Audit Committee has also discussed with management of the Company and the Auditor such other matters and received such assurances from them as it deemed appropriate. The Audit Committee meets regularly with management and the Auditor, and then with the Auditor without management present, to discuss the result of the Auditor examination, the evaluation of the Company’s internal control over financial reporting and the overall quality of the Company’s accounting.
 
Compensation Committee
 
The Compensation Committee, consisting of the independent directors George J. Leon, Robert A. Rice, and Robert H. Walker, is responsible for (1) reviewing and evaluating employee stock and other compensation programs and plans, (2) determining the compensation of the Chief Executive Officer, and (3) approving compensation arrangements, including keyman incentive compensation and stock option grants, for management and other employees. The Board created the Compensation Committee by resolution giving it the foregoing authority.
 
The Compensation Committee met once during the 2024 fiscal year; Messrs. Leon, Rice and Walker attended the meeting. Messrs. Leon, Rice, and Walker are independent, as defined under the Securities Exchange Act of 1934. See “Executive Compensation” below for a discussion of the Committee’s processes and procedures for reviewing and determining compensation.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
As of March 31, 2024, the end of the last fiscal year, the Company believes that all officers, directors and 10% beneficial owners, known to the Company, had, during such last fiscal year, timely filed required forms reporting beneficial ownership of Company securities, other than the Form 3 for Pauline Romeo, based solely on review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, and information furnished to the Company.
 
Code of Ethics
 
The Company has had corporate governance standards and policies, regulating officer, director, and employee conduct for many years. In fiscal 2004, we reviewed our standards and policies and incorporated them into our Code of Business Conduct, which we believe satisfies the rules promulgated by the SEC. The Board has adopted this written Code of Ethics that applies to all of the Company’s officers and employees, including the Chief Executive Officer and the Chief Accounting Officer. A copy of the Code of Ethics has been previously filed. A copy of the Code of Ethics is available to anyone requesting a copy without cost by writing to the Company, attention Pauline X. Romeo.
 

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Item 10. Directors, Executive Officers, and Corporate Governance (continued)
 
Shareholder Recommendations
 
There have been no material changes to the Company’s procedures by which shareholders may recommend nominees to the Board of Directors since the Company’s last Annual Report on Form 10-K.
 
Legal Proceedings
 
There are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is adverse to our Company or any of our subsidiaries or has a material interest adverse to our Company or any of our subsidiaries. No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, or banking activities during the past ten years. No director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.
 
Item 11. Executive Compensation
 
The following table presents information regarding compensation of our principal executive officer, and the most highly compensated executive officers other than the principal executive officer for services rendered during fiscal years 2024 and 2023.
 
Summary Compensation Table
 
Grants of Plan-based Awards Table for Fiscal Year
 



Name and Principal Position

 

Fiscal Year

 

Salary ($) (1)

 
 

Incentive ($) (2)

 
 

Option Awards ($) (3)

 
 

All Other 
Compensation ($) (4)

 
 

Total ($)

 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Jeffrey C. O’Hara, CEO President

 

2024

 
 
190,000
 
 
 
-
 
 
 
-
 
 
 
26,135
 
 
 
216,135
 


 
 

2023

 
 
190,008
 
 
 
45,000
 
 
 
-
 
 
 
25,547
 
 
 
260,555
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Pauline X. Romeo CAO

 

2024

 
 
141,621
 
 
 
-
 
 
 
-
 
 
 
23,576
 
 
 
165,197
 


 
 

2023

 
 
136,913
 
 
 
21,000
 
 
 
-
 
 
 
24,348
 
 
 
182,261
 


 



(1)


The amounts shown in this column represent the dollar value of base cash salary earned by each named executive officer (“NEO”).



 



(2)


Incentive compensation for each named executive officer (“NEO”).



 



(3)


Amounts in this column represent the fair value required by ASC Topic 718 to be included in our financial statements for all options granted during that year (see Note 14 to Notes to the Consolidated Financial Statements).




 


 




(4)


The amounts shown in this column represent amounts for medical and life insurance as well as the Company’s match in the 401(k) Plan.



 
There were no stock options granted during or for the 2024 fiscal year to our named executive officers:
 

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Item 11. Executive Compensation (continued)
 
Outstanding Equity Awards at Fiscal Year End
 
The following table sets forth the outstanding stock option grants held by named executive officers at the end of the 2024 fiscal year. The option exercise price set forth in the table is based on the closing market price on the date of grant.
 



Name

 

Number of Securities Underlying 
Unexercised Options (#)
Exercisable 

 
 

Number of Securities Underlying 
Unexercised Options (#)
Unexercisable (1)

 
 

Option Exercise Price ($)

 

Option Expiration Date



 
 
 
 
 
 
 
 
 
 
 
 
 
 



Pauline X. Romeo

 
 
800
 
 
 
1,200
 
 
$
2.94
 

9/2/26




Jeffrey C. O’Hara

 
 
2,000
 
 
 
3,000
 
 
 
2.94
 

9/2/26




Pauline X. Romeo

 
 
9,000
 
 
 
6,000
 
 
 
3.11
 

1/12/26




Jeffrey C. O’Hara

 
 
25,000
 
 
 
-
 
 
 
3.19
 

5/08/24



 



Name

 

Number of Shares or Units of Stock that have not Vested (#) 

 
 

Market Value of Shares of Units That Have Not Vested ($)

 
 

Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#)

 
 

Equity Incentive Plan Awards: Market of Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($)

 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Pauline X. Romeo

 
 
7,200
 
 
$
12,672
 
 
 
-
 
 
 
-
 



Jeffrey C. O’Hara

 
 
3,000
 
 
$
5,280
 
 
 
-
 
 
 
-
 


 



(1)


Options are exercisable, on a cumulative basis, 20% at or after each of the first, second, and third anniversary of the grant and 40% after the fourth year anniversary.



 
Employment Contracts and Termination of Employment and Change-in-Control
 
There are no employment contracts, compensatory plans, or arrangements, including payments to be received from the Company with respect to any executive officer of Tel which would in any way result in payments to any such person because of his or her resignation, retirement, or other termination of employment with the Company, any change in control of the Company or a change in the person’s responsibilities following a change in control of the Company.
 
Options Exercised and Stock Vested During Fiscal Year 2024
 
No shares were acquired upon exercising options awards by our NEO’s during fiscal year 2024.
 
Options granted to NEOs are consistent with the terms of options granted to other employees pursuant to the Employee Stock Option Plans (see Note 14 of the Notes to the Consolidated Financial Statements). Options granted to NEOs may be tax sheltered to the grantee, and their value constitutes a charge to the Company (see Notes 2 and 14 to the Consolidated Financial Statements).
 

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Item 11. Executive Compensation (continued)
 
Incentive Plan
 
The Company has a key person incentive compensation program. Each year the Compensation Committee determines a percentage of operating profits to be distributed among senior employees, including NEOs. The percentage determined is based on the general performance of the Company, and the amount of operating profits available for shareholders and for reinvestment in the business. This element of compensation provides an incentive for short-term performance.
 
The percentage of operating profits so determined is then distributed to senior employees, including NEOs and to a category entitled “incentive”, based on (a) the amount of the employee’s base salary, (b) his contribution to the Company, (c) the results of that contribution, (d) an estimated amount of his “special effort” on behalf of the Company, (e) his technical expertise, leadership, and management skills, and (f) the level of the overall compensation paid employees performing similar work in competitive companies.
 
For the year ended March 31, 2024, the CEO received $0, and the CAO received $0. For the year ended March 31, 2023, the CEO received $45,000 and the CAO received $21,000.
 
Other Benefits
 
The Company sponsors the Tel-Instrument Electronics Corp. 401(k) Plan (the “401k Plan”), a tax qualified Code Section 401(k) retirement savings plan, for the benefit of its employees, including its NEOs. The 401k Plan encourages savings for retirement by enabling participants to make contributions on a pre-tax basis and to defer taxation on earnings on funds contributed to the 401k Plan. The Company makes matching contributions to the Plan. All NEOs can make contributions to the 401k Plan. The NEOs also participate in group health and life benefits generally on the same terms and conditions that apply to other employees.
 
Director Compensation
 
Directors who are not employees or officers of the Company receive $1,250 in cash and options, at the then market price, to purchase 1,000 shares of Common Stock for attendance at each in-person meeting and $625 in cash and options to purchase 500 shares of Common Stock for attendance at each formal telephonic meeting of the Board or of a committee of the Board. Non-employee directors may elect annually to accept the foregoing compensation or waive the stock option element and receive the $2,500 in cash for attendance at the in-person meeting and $1,250 in cash for each formal telephone meeting. During fiscal year 2024 non-employee directors earned the following compensation pursuant to this plan.
 



Name

 

Cash Compensation

 
 

Option Awards ($)(1)(2)

 
 

Total $

 



George J. Leon

 
$
7,500
 
 
$
-0-
 
 
$
7,500
 



Robert A. Rice

 
$
8,750
 
 
$
-0-
 
 
$
8,750
 



Robert H. Walker (3)

 
$
8,750
 
 
$
-0-
 
 
$
8,750
 



Stephen A. Fletcher

 
$
3,750
 
 
$
-0-
 
 
$
3,750
 


 



(1)


Amounts in this column, if any, represent the fair value required by ASC 718 to be included in our financial statements for all options granted during fiscal year 2024.



 



(2)


There are no options outstanding for the directors.



 



(3)


Mr. Walker also receives a monthly stipend of $2,400 for his additional responsibility as Chairperson of the Board.



 
Compensation Policy
 
The Company does not believe that its compensation policies are reasonably likely to increase corporate risk or have a material adverse effect on the Company.
 

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The following table sets forth certain information known to the Company with respect to the beneficial ownership as of June 21, 2024, by (i) all persons who are beneficial owners of five percent (5%) or more of the Company’s Common Stock, (ii) each director and nominee, (iii) the executive officers, and (iv) all current directors and executive officers as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the tables for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.
 
For purposes of these tables, a person or group of persons is deemed to have “beneficial ownership” of any shares of Common Stock that such person has the right to acquire within 60 days of June 21, 2024. For purposes of computing the percentage of outstanding shares of our Common Stock held by each person or group of persons, any shares that such person or persons has the right to acquire within 60 days of June 21, 2024, is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.
 



Name and Address

 

Number of Shares
Beneficially Owned

 
 

Percentage
of Class (1)

 


 
 
 
 
 
 
 
 
 



Named Directors and Officers

 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 



Stephen A. Fletcher, Director

 
 
7,254
(2)
 
 
0.2
%



3995 Oleander Court

 
 
 
 
 
 
 
 



Orange Beach, AL 36561

 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 



George J. Leon, Director

 
 
459,757
(3)
 
 
14.1
%



168 Redpath Avenue

 
 
 
 
 
 
 
 



Toronto, Ontario, Canada M4P 2K6

 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 



Jeffrey C. O’Hara, CEO, Director

 
 
235,156
(4)
 
 
7.2
%



853 Turnbridge Circle

 
 
 
 
 
 
 
 



Naperville, IL 60540

 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 



Robert A. Rice, Director

 
 
26,700
 
 
 
0.8
%



5 Roundabout Lane

 
 
 
 
 
 
 
 



Cape Elizabeth, ME 04107

 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 



Robert H. Walker, Director

 
 
75,083
 
 
 
2.3
%



27 Vantage Court

 
 
 
 
 
 
 
 



Port Jefferson, NY 11777

 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 



Pauline X. Romeo, CAO

 
 
9,800
(4)
 
 
0.3
%



1 Branca Road
East Rutherford, NJ 07073

 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 



All officers and directors as a group (6 persons)

 
 
813,750
(7)
 
 
24.9
%


 
 
 
 
 
 
 
 
 



Vincent J. Dowling, Jr.

 
 
911,548
(5)
 
 
28.0
%



54 Ledyard Road

 
 
 
 
 
 
 
 



West Hartford, CT 06117

 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 



Mrs. Sadie Fletcher

 
 
514,614
(6)
 
 
15.7
%



657 Downing Lane

 
 
 
 
 
 
 
 



Williamsville, NY 14221

 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 



Vincent J. Dowling, Sr.

 
 
583,567
(8)
 
 
17.9
%



102 Island Creek Drive

 
 
 
 
 
 
 
 



Indian River Shores, FL 32963

 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 



All officers, directors and 5% holders as a group (9 persons)

 
 
2,823,479
(9)
 
 
85.6
%


 

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (continued)
 



(1)


The class includes 3,255,887 shares outstanding in the calculation of the percentage of shares owned by a party. The Common Stock deemed to be owned by the named party includes stock which is not outstanding but subject to currently exercisable options held by the individual named in accordance with Rule 13d-3(d)c) of the Exchange Act. The foregoing information is based on reports made by the named individuals.



 
 



(2)


Mr. Stephen A. Fletcher is the son of Mr. Harold K. Fletcher, former Chief Executive Officer, and director of the Company. Mr. Stephen A. Fletcher is the son of Mrs. Sadie Fletcher who beneficially owns 514,614 shares by virtue of the Estate of Harold K. Fletcher. Mr. Fletcher disclaims beneficial ownership of the shares owned by the Estate of Harold K. Fletcher.



 
 



(3)


Includes 419,921 shares owned by the George Leon Family Trust, of which Mr. Leon is a beneficiary. Mr. Leon acts as manager of the trust assets pursuant to an informal family, oral arrangement, and disclaims beneficial ownership of the shares owned by the trust. Includes 28,500 shares of common stock that may be acquired upon conversion of the Series C Convertible Preferred Stock as well as an additional 3,786 shares that may be acquired based on accrued dividends. The Holder(s) of the Series C Convertible Preferred Stock can vote together with the holders of the Company’s common stock (“Common Stock”) on an as-converted basis on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). In any such vote, the number of votes that may be cast by a Holder shall be equal to one (1) vote for each Conversion Share underlying such Holder’s outstanding shares of Series C Convertible Preferred Stock (see Note 16 to the consolidated financial statements).



 
 



(4)


Includes shares subject to currently exercisable stock options owned by Mr. O’Hara (27,000 shares) and Ms. Romeo (9,800 shares).



 
 



(5)


Includes 333,333 shares of common stock that may be acquired upon conversion of the Series A Convertible Preferred Stock as well as an additional 247,999 shares that may be acquired based on accrued dividends. The Holder(s) of the Series A Convertible Preferred Stock can vote together with the holders of the Company’s common stock (“Common Stock”) on an as-converted basis on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). In any such vote, the number of votes that may be cast by a Holder shall be equal to one (1) vote for each Conversion Share underlying such Holder’s outstanding shares of Series A Convertible Preferred Stock, subject to adjustment based on the applicable Maximum Conversion Amount, as of the record date for such vote or written consent or, if there is no specified record date, as of the date of such vote or written consent (see Note 16 to the consolidated financial statements). Shares of 3,336 are held by the children of the Holder.



 
 



(6)


Represents 486,293 shares owned by the Estate of Harold K. Fletcher, former Chief Executive Officer, and director of the Company. Mrs. Fletcher is the mother of Stephen A. Fletcher, a director of the Company. Includes 25,000 shares of common stock that may be acquired upon conversion of the Series C Convertible Preferred Stock as well as an additional 3,321 shares that may be acquired based on accrued dividends. The Holder(s) of the Series C Convertible Preferred Stock can vote together with the holders of the Company’s common stock (“Common Stock”) on an as-converted basis on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). In any such vote, the number of votes that may be cast by a Holder shall be equal to one (1) vote for each Conversion Share underlying such Holder’s outstanding shares of Series C Convertible Preferred Stock (see Note 16 to the consolidated financial statements).



 
 



(7)


Includes 36,800 shares subject to currently exercisable options held by all executive officers and directors of the Company (including those individually named above).



 
 



(8)


Includes 166,667 shares of common stock that may be acquired upon conversion of the Series B Convertible Preferred Stock as well as an additional 108,822 shares that may be acquired based on accrued dividends. The Holder(s) of the Series B Convertible Preferred Stock can vote together with the holders of the Company’s common stock (“Common Stock”) on an as-converted basis on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). In any such vote, the number of votes that may be cast by a Holder shall be equal to one (1) vote for each Conversion Share underlying such Holder’s outstanding shares of Series B Convertible Preferred Stock (see Note 16 to the consolidated financial statements). Also includes 166,667 shares of common stock that may be acquired upon conversion of the Series A Convertible Preferred Stock as well as an additional 124,000 shares that may be acquired based on accrued dividends. The Holder(s) of the Series A Convertible Preferred Stock can vote together with the holders of the Company’s common stock (“Common Stock”) on an as-converted basis on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). In any such vote, the number of votes that may be cast by a Holder shall be equal to one (1) vote for each Conversion Share underlying such Holder’s outstanding shares of Series A Convertible Preferred Stock, subject to adjustment based on the applicable Maximum Conversion Amount, as of the record date for such vote or written consent or, if there is no specified record date, as of the date of such vote or written consent (see Note 16 to the consolidated financial statements).



 
 



(9)


Includes 40,586 shares subject to currently exercisable options held by all executive officers and directors of the Company (including those individually named above). Also 581,332 and 290,667 shares of common stock that may be acquired upon conversion of the Series A Convertible Preferred Stock.



 

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (continued)
 
Equity Compensation Plan Information
 
In December 2016, the Board adopted the 2016 Stock Option Plan (the “2016 Plan”) which reserved for issuance options to purchase up to 250,000 shares of its Common Stock. The stockholders approved the 2016 Plan at the January 2017 annual meeting. Shareholders had previously adopted the 2006 Stock Option Plan, under which substantially all of the options have been granted. Therefore, the Board approved the 2016 Plan, and the terms are substantially the same as under the 2006 Employees Stock Option.
 
The 2016 Plan reserves for issuance options to purchase up to 250,000 shares of its common stock. All employees, directors and consultants are eligible to receive stock option grants under this plan. The 2016 Plan, which has a term of ten years from the date of adoption, is administered by the Board or by a committee appointed by the Board. The selection of participants, allotment of shares, and other conditions related to the grant of options, to the extent not set forth in the Plan, are determined by the Board. Options granted under the Plan are exercisable up to a period of five years from the date of grant at an exercise price which is not less than the fair market value of the common stock at the date of grant, except to a shareholder owning 10% or more of the outstanding common stock of the Company, as to which the exercise price must be not less than 110% of the fair market value of the common stock at the date of grant. Options, for the most part, are exercisable on a cumulative basis, 20% at or after each of the first, second, and third anniversary of the grant and 40% after the fourth year anniversary. These terms can be modified based upon approval of the Board.
 
The following table provides information as of March 31, 2024, regarding compensation plans under which equity securities of the Company are authorized for issuance. See “Equity Compensation Plan Information” under Item 12 below.
 



Plan category

 

Number of securities to be issued 
upon exercise of outstanding options

 
 

Weighted average exercise 
price of outstanding options

 
 

Number of options remaining available for future issuance under Equity Compensation Plans

 



Equity Compensation Plans approved by shareholders

 
 
99,000
 
 
$
3.13
 
 
 
151,000
 



Equity Compensation Plans not approved by shareholders

 
 
-
 
 
 
-
 
 
 
-
 



Total

 
 
99,000
 
 
$
3.13
 
 
 
151,000
 


 
* See discussion above and Note 14 of Notes to the Consolidated Financial Statements.
 
Item 13. Certain Relationships and Related Transactions and Director Independence
 
The Company has obtained marketing and sales services from a brother-in-law of the Company’s CEO with the related fees and commissions amounting to $115,942 and $145,446 for the years ended March 31, 2024, and 2023, respectively. At fiscal year ended March 31, 2024, $66,155 remained accrued and unpaid.
 
Director Independence
 
On an annual basis, each director and executive officer is obligated to disclose any transactions with the Company in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest in accordance with Item 407(a) of Regulation S-K.
 
As of June 24, 2024, the Board determined that the following directors are independent under these standards:
 
Robert Walker, George Leon, and Robert Rice.
 

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Item 14. Principal Accounting Fees and Services
 
As previously reported, the Audit Committee appointed Marcum LLP to serve as the Company's independent auditor for fiscal year 2024.
 
For the fiscal years ended March 31, 2024, and 2023, professional services were performed by Marcum LLP and Friedman LLP, the Company’s independent registered public accountants for those years were as follows:
 


 
 

2024

 
 

2023

 


 
 
 
 
 
 
 
 
 



Audit Fees (Friedman LLP)

 
$
-
 
 
$
82,950
 



Audit Fees (Marcum LLP)

 
 
139,100
 
 
 
59,850
 



Audit-Related Fees

 
 
-
 
 
 
-
 



Total Audit and Audit-Related Fees

 
 
139,100
 
 
 
142,800
 



Tax Fees

 
 
-
 
 
 
-
 



All Other Fees

 
 
-
 
 
 
-
 


 
 
 
 
 
 
 
 
 



Total

 
$
139,100
 
 
$
142,800
 


 
Audit Fees. This category includes the audit of the Company’s consolidated financial statements and reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q and Form 10-K. It also includes advice on accounting matters that arose during, or as a result of, the audit or the review of interim financial statements, and services which are normally provided in connection with regulatory filings, or in an auditing engagement.
 
Marcum LLP performed the audit for the fiscal year ended March 31, 2024, and reviews for quarters 1, 2, and 3. Marcum LLP performed the audit for the fiscal year ended March 31, 2023, and reviews for quarters 2 and 3. Friedman LLP performed the review for quarter 1 for fiscal year ended March 31, 2023.
 
Audit Related Fees, Tax Fees, and All Other Fees. No fees under these categories were paid to Marcum LLP and Friedman LLP in 2024 and/or 2023.
 
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor
 
The Audit Committee has established a policy which requires it to pre-approve all audit and permissible non-audit services, including audit-related and tax services, if any, to be provided by the independent auditor. Pre-approval is generally provided for up to one year and is detailed as to the particular service or category of service to be performed, and is subject to a detailed budget. The auditor and management are required to report periodically to the Audit Committee regarding the extent of services performed and the amount of fees paid to date, in accordance with the pre-approval.
 
 

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PART IV
 
Item 15. Exhibits and Financial Statement Schedules
 
a.) The following documents are filed as a part of this report:
 



 


Pages




Financial Statements:


 




 


 




Report of Independent Registered Public Accounting Firm (PCAOB ID: 688)


18




 


 




Consolidated Balance Sheets - March 31, 2024 and 2023


19




 


 




Consolidated Statements of Operations - Years March 31, 2024 and 2023


20




 


 




Consolidated Statements of Changes in Stockholders’ Equity - Years March 31, 2024 and 2023


21




 


 




Consolidated Statements of Cash Flows - Years March 31, 2024 and 2023


22




 


 




Notes to Consolidated Financial Statements


23



 
 

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Item 15. Exhibits and Financial Statement Schedules (continued)
 
c.) Exhibits identified in parentheses below on file with the Securities and Exchange Commission, are incorporated herein by reference as exhibits hereto.
 



(3.1)


Tel-Instrument Electronics Corp.’s Restated Certificate of Incorporation dated November 8, 1996 (incorporated by reference to the Current Report on Form 10-K filed with the SEC on July 14, 1997).




(3.2)


Certificate of Amendment to Certificate of Incorporation (incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on March 2, 2018).




(3.3)


Tel-Instrument Electronics Corp.’s By-Laws, as amended (incorporated by reference to Registration 33-18978 dated November 7, 1988).




(3.4)


Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated October 9, 2018).




(3.5)


Certificate of Amendment to Certificate of Incorporation (Series B) (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated September 18, 2023).




(3.6)


Certificate of Amendment to Certificate of Incorporation (Series C) (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated September 18, 2023).




(10.1)


10% convertible subordinated note between Registrant and Harold K. Fletcher (incorporated by reference to the Company’s Report on Form 10-K filed with the SEC on July 15, 2002).




(10.2)


Purchase agreement between Registrant and Innerspace Technology (incorporated by reference to the Company’s Report on Form 10-K filed with the SEC on July 15, 2004).




(10.3)


Agreement between Registrant and Semaphore Capital Advisors, LLC (incorporated by reference to the Company’s Report on Form 10-K filed with the SEC on July 15, 2002).




(10.5)


Subordinated Note Between Registrant and Harold K. Fletcher (incorporated by reference to the Company’s Report on Form 8-K filed with the SEC on March 25, 2010).




(10.6)


Subordinated Note Between Registrant and Jeffrey C. O’Hara (incorporated by reference to the Company’s Report on Form 8-K filed with the SEC on March 25, 2010).




(10.7)


Loan Agreement with BCA Mezzanine Fund, LLP (incorporated by reference to the Company’s Report on Form 10-K filed with the SEC on June 29, 2011).




(10.8)


Intercreditor and Subordination Agreement among Harold. K. Fletcher, Jeffrey C. O’Hara and BCA Mezzanine Fund, LLP (incorporated by reference to the Company’s Report on Form 10-K filed with the SEC on June 29, 2011).




(10.9)


Subscription Agreement between Registrant and Subscriber (incorporated by reference to the Company’s Report on Form 8-K filed with the SEC on November 21, 2012).




(10.10)


Loan Agreement with Bank of America (incorporated by reference to the Company’s Report on Form 10-Q filed with the SEC on February 17, 2015).




(10.11)


Form of Subscription Agreement (incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on November 16, 2017).




(10.12)


2016 Stock Option Plan (incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on December 27, 2016).




(10.13)


Form of Subscription Agreement (incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on October 9, 2018).




(21.1)


List of Subsidiaries




(23.1)


Independent Registered Public Accounting Firm’s Consent – Marcum LLP 




(31.1)


Certification by CEO pursuant to Rule 15d-14 under the Securities Exchange Act.




(31.2)


Certification by PAO pursuant to Rule 15d-14 under the Securities Exchange Act.




(32.1)


Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




(32.2)


Certification by PAO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




101.INS


Inline XBRL Instance Document




101.SCH


Inline XBRL Taxonomy Extension Schema Document




101.CAL


Inline XBRL Taxonomy Extension Calculation Linkbase Document




101.DEF


Inline XBRL Taxonomy Extension Definition Linkbase Document




101.LAB


Inline XBRL Taxonomy Extension Label Linkbase Document




101.PRE


Inline XBRL Taxonomy Extension Presentation Linkbase Document




104


Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)



 
The Company will furnish to a stockholder, upon request, any exhibit at cost.
 
Item 16. Form 10-K Summary
 
None.
 

54



Table of Contents



 
Signatures
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 



 


TEL-INSTRUMENT ELECTRONICS CORP.


 




 


(Registrant)


 




 


 


 


 




Dated: June 28, 2024


By:


/s/ Jeffrey C. O’Hara


 




 


 


Jeffrey C. O’Hara


 




 


 


CEO and Director


 




 


 


(Principal Executive Officer)


 



 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated and by signature hereto.
 



 


Signature


 


Title


 


Date




 


 


 


 


 


 




 


/s/ Jeffrey C. O’Hara


 


CEO, President, and Director


 


June 28, 2024




 


Jeffrey C. O’Hara


 


 


 


 




 


 


 


 


 


 




 


/s/ Pauline X. Romeo


 


Chief Accounting Officer


 


June 28, 2024




 


Pauline X. Romeo


 


 


 


 




 


 


 


 


 


 




 


/s/ Stephen A. Fletcher


 


Director


 


June 28, 2024




 


 Stephen A. Fletcher


 


 


 


 




 


 


 


 


 


 




 


/s/ George J. Leon


 


Director


 


June 28, 2024




 


 George J. Leon


 


 


 


 




 


 


 


 


 


 




 


/s/ Robert A. Rice


 


Director


 


June 28, 2024




 


 Robert A. Rice


 


 


 


 




 


 


 


 


 


 




 


/s/ Robert H. Walker


 


Chairperson of the Board, Director


 


June 28, 2024




 


 Robert H. Walker


 


 


 


 



 



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